Solution Manual for Management 12th Edition by Ricky W. Griffin

Instructor’s Manual

Management TWELFTH EDITION

Ricky W. Griffin Texas A&M University

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CONTENTS PART 1: Introducing Management 1 Managing and the Manager‘s Job .......................................................................................... 1 2 Traditional and Contemporary Management Perspectives .................................................. 13 PART 2: Understanding the Environmental Context of Managing 3 Understanding the Organization‘s Environment ................................................................ 25 4 Responding to the Ethical and Social Environment ............................................................ 38 5 Navigating the Global Environment .................................................................................... 51 PART 3: Planning and Decision Making 6 7 8 9

Basic Elements of Planning and Decision Making ............................................................. 65 Managing Strategy and Strategic Planning ......................................................................... 78 Managing Decision Making and Problem Solving ............................................................. 95 Managing Start-Ups and New Ventures ............................................................................ 110

PART 4: The Organizing Process 10 11 12 13

Basic Elements of Organizing .......................................................................................... 120 Managing Organization Design ......................................................................................... 134 Managing Organization Change and Innovation ............................................................... 148 Managing Human Resources in Organizations.................................................................. 161

PART 5: The Leading Process 14 15 16 17 18

Basic Elements of Individual Behavior in Organizations .................................................. 177 Managing Employee Motivation and Performance ........................................................... 193 Managing Leadership and Influence Processes ................................................................. 208 Managing Interpersonal Relations and Communication.................................................... 224 Managing Work Groups and Teams .................................................................................. 239

PART 6: The Controlling Process 19 Basic Elements of Control ................................................................................................. 253 20 Managing Operations, Quality, and Productivity .............................................................. 257

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CHAPTER 1

Managing and the Manager’s Job Part One of the text is simply INTRODUCING MANAGEMENT. Part One consists of two chapters. Chapter One outlines the manager‘s job and Chapter Two covers the history of management and contemporary issues facing management.

CHAPTER SUMMARY Chapter One provides an overview of management and the manager‘s job. After a brief introduction, the chapter describes the management process around which the book is organized. It then identifies and describes various kinds of managers. Next, the chapter discusses basic managerial roles and skills. After an analysis of the nature of managerial work, the chapter examines the scope of management in profitseeking and not-for-profit organizations. In conclusion, the chapter addresses a variety of challenges facing managers today.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the nature of management, define management and managers, and characterize their importance to contemporary organizations.

2.

Identify and briefly explain the four basic management functions in organizations.

3.

Describe the kinds of managers found at different levels and in different areas of the organization.

4.

Identify the basic managerial roles played by managers and the skills they need to be successful.

5.

Discuss the science and the art of management, describe how people become managers, and summarize the scope of management in organizations.

6.

Characterize the new workplace that is emerging in organizations today.

MANAGEMENT IN ACTION How to Make Mistakes and Influence People The opening incident describes Elaine Wherry, Meebo co-founder, and her belief that all managers make mistakes. ―Everyone has to go through the same rites of passage,‖ but ―you recover more quickly‖ when you admit and reflect upon your mistakes. After starting Meebo with two friends in 2005, Wherry began losing sleep obsessing over mistakes she made throughout the day. She began keeping a journal of her mistakes and after leaving Meebo in 2012 wrote ―100 Mistakes‖ on her blog, complete with drawings.

Wherry may turn her idea into a graphic novel but is currently busy giving presentations to management and entrepreneurship groups.

Discussion Starter: Do you believe Wherry is correct in her assumption that all new managers make the same mistakes? Would you be offended if you boss handed you a bulleted list of ways you would fail as Wherry did? Do you think her use of stories to drive the points home is more effective?

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Management 12e by Ricky W. Griffin

LECTURE OUTLINE Organizations and their managers play an important role in contemporary society.

An organization is defined as a group of people working together in a structured and coordinated fashion to achieve a set of goals.

Teaching Tip: Note the names of your school and several local organizations as further examples of different kinds of organizations that exist in your town. These examples will help make the material immediately relevant and realistic for your students.

I.

AN INTRODUCTION TO MANAGEMENT Many different definitions of management exist. This book uses a resource-based definition.

Resources is defined broadly to include human, financial, physical, and information resources.

Teaching Tip: Note the similarities and differences among the kinds of resources used by profit-seeking and not-for-profit organizations. For example, both an airline and a university may buy food in bulk, but they have different revenue sources to pay for it.

Group Exercise: A good icebreaking exercise for the first day of class is to have students form small groups, select two or three different kinds of organizations, and identify examples of the different kinds of resources used by those organizations.

As indicated in Figure 1.1, management is a set of activities—including planning and decision making, organizing, leading, and controlling—directed at an organization‘s human, financial, physical, and information resources with the aim of achieving organizational goals in an efficient and effective manner.

Teaching Tip: Review the definition of management with your students and stress its connection with the overall text layout. In particular, note that each of the basic management functions—planning, organizing, leading, controlling—mentioned in the definition is covered in a major part of the book.

Efficient means using resources wisely and in a cost-effective way.

Effective means making the right decisions and successfully implementing them.

A manager is someone whose primary responsibility is to carry out the management process.

In particular, a manager is someone who plans and makes decisions, organizes, leads, and controls human, financial, physical, and information resources.

Teaching Tip: Again, note the relationship of the definition of a manager to the overall framework and structure of the book itself. Be sure to stress, however, that these management functions are not likely to be performed in an orderly or routine sequence.

Discussion Starter: Ask students to identify other examples of managers, with an emphasis on as many different kinds of organizations and management positions as possible. The wide variety of answers that is likely to emerge can be used to stress the diversity that exists in managerial work.

II.

THE MANAGEMENT PROCESS (WHAT DO MANAGERS DO?) The management process, as noted earlier, involves the four basic functions of planning and decision making, organizing, leading, and controlling.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment These functions provide the framework around which this book is organized.

Cross-Reference: Note that Figure 1.2 is the center part of Figure 1.1, with extra annotations describing the four management functions. The arrows convey a sense of continuous movement among the functions, rather than a predictable, orderly sequence.

Extra Example: Jeff Bezos, CEO of Amazon.com illustrates the basic management functions. He planned Amazon‘s expansion into new products and markets. He designed Amazon around cooperative arrangements, such as alliances with Target, Office Depot, and Toys ‗R‘ Us. As a leader, he rewards creativity and insists on efficiency.

A.

Planning and Decision Making: Determining Courses of Action Planning means setting an organization‘s goals and deciding how best to achieve them.

Decision making, a part of the planning process, involves selecting a course of action from a set of alternatives.

Teaching Tip: There are five types of themed inserts that appear throughout the text.

They feature management issues related to ethics, globalization, technology, diversity, or contemporary management controversies.

Cross-Reference: Chapters 6–9 in Part III discusses planning and decision making.

B.

Organizing: Coordinating Activities and Resources Organizing involves determining how activities and resources are to be grouped.

Cross-Reference: Organizing is discussed more fully in Chapters 10–13 in Part IV.

C.

Leading: Motivating and Managing People Leading is the set of processes used to get members of the organization to work together to further the interests of the organization.

Cross-Reference: Leading is discussed more fully in Chapters 14–18 in Part V.

D.

Controlling: Monitoring and Evaluating Activities Controlling means monitoring organizational progress toward goal attainment.

Cross-Reference: Controlling is discussed more fully in Chapters 19–20 in Part VI.

III. KINDS OF MANAGERS A.

Managing at Different Levels of the Organization Levels of management is the differentiation of managers into three basic categories – top, middle, and first-line.

Figure 1.3 illustrates the different kinds of managers in an organization by level and by area.

1.

Top managers are the small group of executives who control the organization by setting its goals, overall strategy, and operating policies. Job titles for top managers include CEO, president, and vice president. These managers make important decisions about which activities the organization should be involved in, such as acquisitions, research and development, and expanding capacity.

Management Update: CEO pay is often a controversial topic. The average CEO pay (for publicly owned companies in the S&P 500 Index) was $12.3 million in 2012, which was a 5 percent decrease over the previous year. Critics argue that CEO pay often does not reflect corporate performance and are far more than what an average employee gets.

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Management 12e by Ricky W. Griffin 1.

2.

Middle managers constitute the largest group of managers in most companies. These managers hold positions such as plant manager, operations manager, and division head.

They primarily put the strategies designed by top managers into action, and they supervise and coordinate the activities of lower-level managers.

First-line managers supervise and coordinate the activities of operating employees. They often have job titles such as supervisor, coordinator, and office manager. The majority of their work is direct supervision of the work of their subordinates.

Teaching Tip: Use examples from your college or university to illustrate the various levels and areas of management discussed in this section.

B.

Managing in Different Areas of the Organization Areas of management means managers can be differentiated into marketing, financial, operations, human resource, administration, and other areas.

1.

2.

3.

4.

5.

6.

Marketing managers work in areas related to the marketing function of the organization.

They help to find ways to get consumers and clients to buy the organization‘s products.

Financial managers deal primarily with an organization‘s financial resources and are involved in such activities as accounting, cash management, and investments.

Operations managers are concerned with creating and managing the systems that create an organization‘s products and services. They achieve their goals through production control, inventory control, quality control, and plant site selection and layout.

Human resource managers are responsible for hiring and developing employees.

They are concerned with the flow of employees into the organization (selection and recruitment), through the organization (training and development, compensation and benefits, and performance appraisal), and out of the organization (discharging).

Administrative managers are generalists who have some basic familiarity with all functional areas of management rather than specialized training in any one area.

Other kinds of managers include public relations managers, who deal with the public and media on behalf of their firm, and research and development managers, who coordinate the activities of scientists and engineers working on scientific projects.

Discussion Starter: Point out for students that their major will play a large role in determining the area of management they enter after graduation (assuming they go to work for a large organization). For example, a marketing major‘s first job is likely to be a first-line management position in the marketing function, whereas a finance major will more likely start out as a first-line finance manager.

IV.

BASIC MANAGERIAL ROLES AND SKILLS A.

Managerial Roles Senior managers play ten different roles falling into three basic categories: interpersonal, informational, and decisional.

1.

Interpersonal roles The roles of figurehead, leader, and liaison, which involve dealing with people.

A figurehead represents the organization through ceremonial and symbolic activities; a leader encourages employees to improve productivity and shows them how to do it; and a liaison coordinates the activities of two or more people, groups of people, or organizations.

2.

Informational roles

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment The roles of monitor, disseminator, and spolesperson, which involve the processing of information.

A monitor actively seeks information that may be of value to the organization; a disseminator transmits information to others in the organization; and a spokesperson transmits information to people outside the unit or outside the organization.

Discussion Starter: In their spokesperson role, CEOs may represent their firms in advertising. A recent example is Bill Ford, CEO of Ford Motors. Ask students to discuss the pros and cons of this strategy.

3.

Decisional roles The roles of entrepreneur, disturbance handler, resource allocator, and negotiator, which relate primarily to making decisions.

The entrepreneur role develops new ideas and initiates changes in the organization; a disturbance handler handles problems that arise such as strikes, copyright infringements, and energy shortages; a resource allocator determines who should receive the available resources and who should have access to the manager‘s time; a negotiator represents the organization in a negotiation setting such as collective bargaining for a union contract or developing an agreement with a consultant.

B.

Managerial Skills Table 1.2 illustrates the most fundamental management skills.

1.

2.

3.

Technical skills are the skills necessary to accomplish or understand the specific kind of work being done in an organization.

Interpersonal skills is the ability to communicate with, understand, and motivate both individuals and groups.

Conceptual skills is the manger‘s ability to think in the abstract. This includes the mental capacity to understand the ―big picture‖ or the overall workings of the organization and its environment.

Extra Example: Bill Gates, co-founder of Microsoft, has excellent conceptual skills. His skills are often credited with keeping the software giant at the forefront of its industry.

4.

5.

6.

7.

Diagnostic skills the manger‘s ability to visualize the most appropriate response to a situation.

Communication skills is the manager‘s ability to effectively convey ideas and information to others and to effectively receive ideas and information from others.

Decision-making skills is the manager‘s ability to correctly recognize and define problems and opportunities and to then select an appropriate course of action to solve problems and capitalize on opportunities.

Time-management skills is the manager‘s ability to prioritize work, to work efficiently, and to delegate appropriately.

Management Update: There has been a renewed interest in the concept of managerial skills. There are useful skill development exercises found at the end of each chapter.

V.

THE NATURE OF MANAGERIAL WORK Managerial work is fast paced, uncertain, and filled with interruptions and fragmented activities.

The tasks performed by a manager every day are varied and intense. However, managers who are able to make good decisions in a short amount of time find a great deal of satisfaction in their jobs.

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Management 12e by Ricky W. Griffin Teaching Tip: If you have any students in class who are or have been managers, ask them to describe the nature of their work.

A.

The Science and the Art of Management 1. The science of management Many management problems can be approached in ways that are rational, logical, objective, and systematic. Managers can gather data, facts, and objective information.

Discussion Starter: The science of management might be analogous to the activities of developing computer hardware or playing a violin. There are specific right and wrong ways of doing things, and mistakes are easily noted.

2.

The art of management includes other aspects of management which are subjective and based on intuition and experience.

Discussion Starter: The art of management might be analogous to the activities of writing computer software or conducting the orchestra. More intuition and ―feel‖ are needed to complete these activities, and mistakes may be harder to pinpoint.

B.

Becoming a Manager Figure 1.4 indicates the sources of management skills.

1.

The role of education Education plays an important part in the development of a manager. Many managers have a bachelor‘s degree or an MBA; others have returned to school to participate in management development programs or intensive training in a particular area. Developing a store of knowledge about the field of management is the goal of management education.

Teaching Tip: If your school offers the MBA degree or has an executive MBA program, students might be interested in a summary of program requirements.

Global Connection: Many universities in other countries have added business programs in recent years. Discuss how the curriculum of a business school in Europe or Japan might compare to your school‘s curriculum.

2.

The role of experience Experience is just as important as education. Just because a manager has a solid understanding of the field of management doesn‘t mean he or she will be a successful manager. Management skills must be learned through experience. Facing the day-to-day pressures of a managerial position leads to the development of insights that cannot be learned from books.

Teaching Tip: Note that most top MBA programs will not accept students directly out of an undergraduate program. Instead, they require the student get an undergraduate degree and then work at least two years in a meaningful job before entering graduate school.

C.

The Scope of Management 1. Managing in Profit-Seeking Organizations Large businesses supply us with the majority of knowledge we have about management.

Examples include ExxonMobil, Citicorp, State Farm, Target, and General Motors. Small and start-up businesses must run as efficiently as large businesses (if not more efficiently) because they have less of a margin for error. Some small businesses grow into large businesses over time.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Teaching Tip: Mention the names of large companies headquartered in your area or that hire large numbers of graduates from your school.

International management has increased in importance over the years. Currently there are companies that are headquartered in the United States but sell overseas, such as General Motors and Coca-Cola. There are also firms that are headquartered overseas and sell in the United States, such as Nestlé and Royal Dutch Shell Group.

Cross-Reference: International management is discussed in detail in Chapter 5. You might note whether your school offers a separate course in international management.

2.

Managing in Not-for-Profit Organizations Government organizations are supported by tax dollars, so efficiency and effectiveness is critical. Examples include the Federal Trade Commission and state highway departments. Educational organizations need to be run efficiently because the funds they are supported by, tax dollars, have been cut and severely limited in the past few years.

Healthcare facilities have changed dramatically in recent years due to new forms of organization and increased financial pressure. Nontraditional organizations—organized crime, religious institutions, fraternities and sororities, households—also have a need for good management to achieve their goals.

Teaching Tip: Note that some organizations may fall into more than one category. For example, a state university is both an educational organization and a government organization. Likewise, a teaching hospital is both an educational organization and a healthcare organization.

Discussion Starter: Ask students to identify other nontraditional examples of management that they may have encountered.

VI. THE NEW WORKPLACE A.

B.

C.

D.

Diversity—differences among people—is increasing in the workforce.

Workforce demographic changes include increasing participation of women in the workforce and women‘s increasing movement into occupations traditionally dominated by men. Another significant change is the increasing ethnic diversity of the workforce, reflecting the increasing diversity of American society. Another important trend is the increasing participation of workers with disabilities.

Workplace changes not related to demographics include the ―yuppie‖ work ethic prevalent in the 1980s, the ―Generation X‖ ethic of the 1990s, and the as-yet-undetermined ethic of workers entering the workforce after 2000.

Thus, managers must create an attractive environment and appropriate motivators for diverse workers, and they must be prepared to cope with continual change in their workers and in the environment.

The new workplace also faces changes in technology and in new ways of organizing, such as virtual organizations and teams-based organization structure.

Cross-Reference: This text provides detailed information on many of these new workplace changes. For example, Chapter 18 covers managing work group and teams.

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Management 12e by Ricky W. Griffin

END OF CHAPTER QUESTIONS Questions for Review 1.

Contrast efficiency and effectiveness. Give an example of a time when an organization was effective but not efficient, efficient but not effective, both efficient and effective, and neither efficient nor effective.

Efficiency requires performing tasks in a way that conserves resources, including time and money.

Effectiveness focuses on whether the performance of the tasks leads to the desired outcomes. One definition is: ―Efficiency is about doing things right; effectiveness is about doing the right things.‖ Effective but not efficient: The Lincoln SUV has the features that customers want, but is so expensive to make that few buyers can afford it. Efficient but not effective: Atari video game systems cost less than Nintendo or Sony systems, but are unpopular with customers. Efficient and effective: Wal-Mart offers a range of products that appeal to customers, at the lowest prices. Neither efficient nor effective: Montgomery Wards, prior to its bankruptcy, offered unappealing merchandise at relatively high prices.

2.

What are the four basic activities that comprise the management process? How are they related to one another?

The basic activities that comprise the management process include planning and decision-making, organizing, leading, and controlling. In theory, the functions interrelate in the order given; but in reality, a manager can perform any or all at the same time. In other words, the management process is dynamic. Which functions a manager performs, and in what order, is dependent on the setting in which the manager is located.

3.

Briefly describe the seven basic managerial skills. Give an example of each.

The most fundamental management skills are technical, interpersonal, conceptual, diagnostic, communication, decision-making, and time-management skills. Managers must know and understand all aspects of the tasks assigned to those they supervise. They must have the technical skills necessary for understanding. A person who does not understand how a computer works would not qualify to train computer technicians. The ability to get along with subordinates, peers, and bosses exemplify interpersonal skills. A manager with strong interpersonal skills may develop strong relationships with clients, thus cementing their loyalty. A manager‘s conceptual ability allows them to see the organization as a whole and comprehend how all the parts work together.

Managers appreciate the work done in other departments when they have strong conceptual abilities.

Diagnostic skills enable managers to recognize potential problems and develop appropriate solutions. If a manufacturing line has an area where work backs up, diagnostic skills allow a manager to identify both the problem and the correct solution. Effectively conveying and receiving ideas and information defines good communication skills. A manager who keeps their team informed and listens to any problems is an effective communicator. Decision-making skills involve the ability to correctly recognize and define problems and opportunities and select a course of action to solve problems or capitalize on opportunities. Offering new items at customers‘ requests exemplifies good decision-making skills. Time-management skills refer to the manager‘s ability to prioritize, work efficiently, and delegate. Delegating authority for making routine, daily decisions allows the manager more time for focusing on other projects.

4.

Describe a typical manager’s day. What are some of the expected consequences of this type of daily experience?

Managerial work is fast-paced, chaotic, fragmented, and stressful. Managers must deal with many different people, situations, and tasks during a day. The decisions are uncertain, complex, and

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment important. Communication tasks are varied and relentless. Consequences of this type of work include stress, burnout, and even physical illness. However, doing difficult work well is often very rewarding too.

Questions for Analysis 5.

Recall a recent group project or task in which you have participated. Explain how members of the group displayed each of the managerial skills.

Students‘ answers will vary, of course, but here are some typical responses. The project may have involved technical skills such as preparing journal entries for an accounting task. Interpersonal skills were used when students interacted with each of their team members. Decision making occurred as the students made choices about the project‘s form and content, as well as administrative tasks such as scheduling meetings and so on. Working to deadlines and using time efficiently required the use of time-management skills.

6.

The text notes that management is both a science and an art. Recall an interaction you have had with a ―superior‖ (manager, teacher, or group leader). In that interaction, how did the superior use science? If he or she did not use science, what could have been done to use science? In that interaction, how did the superior use art? If he or she did not use art, what could have been done to use art?

Students‘ answers will vary, but here is one possible response. In grading my most recent essay paper, my professor used art when she made constructive comments based on her experience and personal insight. She was tactful in communicating her suggestions to me. She also used science when she compared my paper to the objective criteria she had explained to us. Science also helped her calculate grade averages and decide on a grading ―curve.‖

7.

Visit the websites of at least five large corporations and locate a biography of each CEO. What formal management education do these leaders have? In your opinion, what is the appropriate amount of formal education needed to be a corporate CEO? Why? Students will notice that most corporate CEOs have formal business education, usually a B.A. in Business or an M.B.A. In some firms, they may have college degrees in other subjects. For example, many hospital CEOs have medical degrees. Students will note that few managers have no college education, just as few have a doctorate degree. Ask students to discuss their answers to the second part of this question in class, as a discussion starter.

Questions for Application 8.

Interview a manager from a local organization. Learn about how he or she performs each of the functions of management, the roles he or she plays, and the skills necessary to do the job.

Students who talk to local managers are likely to find that managers perform a number of functions, play several roles, and possess a variety of skills. Students who interview the owner of a small store or the manager of a small company are likely to discover the greatest array of functions and roles.

9.

Find an organization chart. You can find one in the library or by searching online. Locate top, middle, and first-line managers on the chart. What are some of the job titles held by persons at each level?

At the highest levels, managers tend to be called president, chairman, CEO, and executive vice president, and chief officer, such as chief financial, information, or marketing officer. At the middle levels, titles such as vice president, division head, or facility manager, are common. Low-level managers are often referred to as supervisor, team leader, or coordinator.

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Management 12e by Ricky W. Griffin 10.

Watch a movie or television program that involves an organization of some type. Diverse examples include Draft Day, Iron Man, Harry Potter or James Bond (or perhaps Citizen Kane for classic movie buffs). For television, options like Boardwalk Empire, Downton Abbey, or The Good Wife would work. Identify as many management activities, skills, and roles as you can.

Depending on the movie selected, answers will vary. Students who choose a Harry Potter movie, for example, will find examples of leading and planning as well as a variety of roles and skills.

END OF CHAPTER EXERCISES Building Effective Time Management Skills Teaching Tip: Each chapter concludes with skill-building exercises. These are designed for both groups and individuals. Some are best done during class, while others are intended to be begun or completed outside of class.

I.

Exercise Overview This exercise allows students to assess their current time-management skills and to understand ways to improve in this area.

II.

Exercise Requirements This exercise must be done individually, outside of class. It will take about 20 minutes to complete.

The results may be discussed in class.

III. Exercise Task A. Visit the web site of Franklin Covey, at www.franklincovey.com. Enter ―Urgency Analysis Profile,‖ in the search box and take a brief survey that should take about 10 minutes.

B.

Now look over your profile and examine the assessment of your current use of time the suggestions for how you can improve your time management. In what ways do you agree and disagree with your personal assessment? Explain your reasons for agreeing or disagreeing.

Covey‘s site shows students that they spend time on tasks of four different types: important but not urgent, urgent but not important, important and urgent, and neither urgent nor important.

Covey recommends that students spend the most time on tasks that are important but not urgent. Covey defines important but not urgent tasks as planning, preparing, preventing crisis, clarifying your values, building relationships, renewing yourself, empowering others, and leading your life in the direction of your choice.

C.

Think of a task that you regularly perform and which, if you were being perfectly honest, you could label not urgent and not important. How much time do you spend on this task? What might be a more appropriate amount of time? To what tasks could you give some of the time that you spend on this not urgent and not important task?

Students‘ opinions will vary. Covey‘s characterization can be useful because it points out that too many people spend most of their time on urgent tasks, especially on urgent tasks that are not important.

D.

What is one thing that you can do today to make better use of your time? Try it, and see if your time management improves.

Covey‘s web site makes few suggestions in this regard (although his books do a very thorough job of this). Upon reflection, however, students should be able to think of ideas for better timemanagement on their own. Remind students that it is not really a good use of time to try to eliminate all non-important, non-urgent tasks. Some of these tasks, such as hanging out with friends or watching TV, can be relaxing and allow one to return to urgent and critical tasks with a fresh enthusiasm.

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Building Effective Conceptual Skills I.

Exercise Overview This exercise helps students to identify potential generalizations of management functions, roles, and skills for different kinds of organizations.

II.

Exercise Requirements This very flexible conceptual skills exercise can be done either in or outside of class and can be done individually or in small groups. The exercise should take between 15 and 30 minutes to complete.

III. Exercise Task A. Do you notice any patterns of meaningful similarities in functions, roles, or skills across the five columns? Are there, for example, similarities in performing leadership roles or applying communication skills in most or all of the five types of organization? Do you notice any patterns of meaningful differences?

The similarities across the columns are due to the characteristics of the functions, roles, and skills. For example, a negotiator in any organization will engage in communication and facilitation of a solution for two or more parties in disagreement. In another example, decisionmaking skills in any organization will involve identifying problems or challenges and selecting effective courses of action. Differences across the organizations are due to the characteristics of the organizations themselves. For example, the types of problems or challenges that a manager of a healthcare organization faces in his or role of decision maker may be quite different than the problems or challenges a manager of a large corporation faces.

B.

Based on your assessment of the patterns of similarities and differences that you identified in task 1, give 2 or 3 reasons why managers might find it easy to move from one type of organization to another. Give 2 or 3 reasons why managers might find it difficult to move from one type of organization to another?

Most of the functions, roles, and skills that a manager enacts are transferable from one organization to another, even to an organization of a different type. For example, communication skills, the disturbance handler role, and the leadership function may be relatively easy to transfer to a different organizational setting even though the specifics of the situations may differ. Technical skills, which are task specific, are not easily transferable.

C.

Identify 2 or 3 places on your grid where the intersection between a type of organization and a function, role, or skill suggests something at which you might be particularly good. How about something at which, at least right now, you think you wouldn‘t be very good? Explain your reasoning.

Student responses will vary depending on their background.

MANAGEMENT AT WORK

Officers and Gentlemen Behaving Badly The case details some of the serious ethical breaches within the U.S. military, mostly involving sexual misbehavior among high-ranking officers. Reprimands range from simple admissions of guilt and fines to demotions. Critics say reprimands do not go far enough. In response, Secretary of Defense Chuck Hagel appointed a Senior Advisor for Military Professionalism – in effect, an ethics officer. Navy Rear Adm. Margaret D. Klein got the job and now reports directly to Hagel on issues related to military ethics, character, and leadership. Klein believes responsibility lies in each individual to eradicate gross misconduct types of behaviors.

1.

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Case Question 1: The text reminds us that the U.S. military is a ―government organization‖ that requires managers. It adds, however, that managing such an organization is often regarded as a © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Management 12e by Ricky W. Griffin ―separate specialty.‖ What do you think the ―separate specialty‖ entails in this context? In what respects is Adm. Margaret Klein qualified in the ―separate specialty‖ that‘s required for success in her job as Senior Advisor for Military Professionalism?

The ―separate specialty‖ referred to here would be that managers in the military are under a different kind of stress than corporate managers. The military puts your life in danger, something corporate managers do not necessarily worry about. The military needs managers who can handle this level of stress and stay calm during the process. Klein is qualified for this job as she has a master‘s degree in education and has over 4,500 hours in command and control aircraft and has held high positions in airborne squadrons and aircraft carriers. Klein also has the added benefit of being female, who could supposedly spot sexual harassment quicker than a male.

2.

Case Question 2: The case indicates that the Senior Advisor for Military Professionalism is essentially ―an ethics officer at the Pentagon.‖ According to one simple explanation, an ethics officer ‖aligns the practices of a workplace with the stated ethics and beliefs of that workplace, holding people accountable to ethical standards.‖ In what ways must a successful ethics officer play Mintzberg‘s ten different managerial roles? If you were to advise Adm. Klein on the relative importance of these roles, in what order would you rank them, from most to least important?

Students‘ answers will vary depending on the order they think the roles should appear. The informational roles of monitor, disseminator and spokesperson should come first, interpersonal roles second, and decisional roles third.

3.

Case Question 3: According to the text, not-for-profit organizations try to meet ―intangible goals.‖ What, in the broadest sense, are the goals of the U.S. military? The text also defines leading as ―the set of processes used to get members of an organization to work together to further the interests of the organization,‖ including meeting its goals. What can and should military leaders do to improve the organization‘s efforts to meet its goals? Why are ethical standards important in these efforts, and what can military leaders do to improve adherence to ethical standards?

The goals of the U.S. military could be to protect the citizens of this country and to uphold the principles and values of this country. Military commanders should use their interpersonal and communication skills to underscore the importance of protecting this country. Ethical standards are important everywhere. People from other countries often form an opinion of U.S. citizens based on interaction with military personnel. It is important that all personnel act with the utmost respect and act ethically towards all other people, including themselves.

4.

Case Question 4: According to businessdictionary.com, a profession can be defined as an occupation, practice, or vocation requiring mastery of a complex set of knowledge and skills through formal education and/or practical experience. Professional ethics can be defined as professionally accepted standards of personal and occupational behavior, values, and guiding principles. Thus, a ―profession‖ is a specific kind of job with certain specific rules for performing job-related activities. How do professional ethics influence job-related activities in ways that don‘t necessarily apply in ―nonprofessional‖ situations?

Professional ethics are those defined through the job and the industry. These standards of behavior are in place for a reason, they address issues that have come up in the past or are seen to be a possible problem in the future. These standards set restrictions on certain activities that would not be restricted in a nonprofessional setting. For instance, roles in the military are strictly constructed and enforced. But in a nonprofessional setting, those roles would no longer apply.

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CHAPTER 2

Traditional and Contemporary Management Perspectives CHAPTER SUMMARY Chapter 2 summarizes the history of management and identifies the major challenges facing managers today. First, the historical context of business is discussed, then three traditional management perspectives—the classical, behavioral, and quantitative—are introduced. Contemporary perspectives, including the systems and contingency approaches, are described. The chapter concludes with a discussion of a variety of contemporary management issues and challenges.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Justify the importance of history and theory to management, and discuss precursors to modern management theory.

2.

Summarize and evaluate the classical perspective on management, including scientific and administrative management, and note its relevance to contemporary managers.

3.

Summarize and evaluate the behavioral perspective on management, including the Hawthorne studies, the human relations movement, and organizational behavior, and note its relevance to contemporary managers.

4.

Summarize and evaluate the quantitative perspective on management, including management science and operations management, and note its relevance to contemporary managers.

5.

Discuss the systems and contingency approaches to management, and explain their potential for integrating the other areas of management.

6.

Identify and describe contemporary management issues and challenges.

MANAGEMENT IN ACTION The Lighter Side of Sustainability The opening case discusses sustainable energy initiatives within the healthcare system. Several examples show how strategically implementing sustainable resource management practices reduce costs while supporting the organization‘s mission. Sustainable resource management includes such things as using natural lighting, using LED lighting, or installing low-flow sinks and toilets. These hospitals are approaching sustainable resource management from a systems perspective. Sustainability makes good business sense. Effective resource management plans cut across organizational functions, identifying, implementing and measuring sustainability throughout the organization.

Discussion Starter: Do you foresee any type of employee resistance to a resource management plan? Could any organization – regardless of size or purpose – benefit from sustainable resource management? How about a personal residence, would the same management tools work?

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Management 12e by Ricky W. Griffin

LECTURE OUTLINE I.

THE ROLE OF THEORY AND HISTORY IN MANAGEMENT A.

The Importance of Theory and History 1. Why theory?—A theory is simply a conceptual framework for organizing knowledge and providing a blueprint for action.

Management theories are grounded in reality, used to build organizations and guide them toward their goals.

Teaching Tip: Many students react negatively to the concept of a ―theory.‖ Ask for opinions about the reasons for the popularity or lack of popularity for a particularly highprofile politician (such as the president) or other public figure (such as a sports figure or movie star). Then point out that their explanation is a theory. Go on to stress that theories are simply frameworks of thought and most people hold a number of different theories.

Management Update: Andrew Grove, former CEO of Intel, continued to espouse his theory of organizations until his retirement in 1990. He gave the theory credit for Intel‘s continued success in the semiconductor business. Grove’s theory is that technology companies face recurring “strategic inflection points” where radical changes force firms to completely transform themselves or die. He warned that “only the paranoid survive,” meaning that firms cannot sit on their success and must adapt continuously.

2.

Why history?—Contributions from past industrialists have molded the American culture, and managers can benefit from an awareness of these contributions.

Discussion Starter: Ask students if they have read any books about history that may help them be better managers.

B.

Precursors to Management Theory 1. Management in antiquity—Although the practice of management can be traced back to 3000 B.C., it was not given serious attention until the 1800s when large organizations emerged during the Industrial Revolution.

Extra Example: Construction of ancient wonders (Stonehenge, the Egyptian pyramids and the Great Wall of China) would not have been possible without effective management.

Global Connection: Use Figure 2.1 as a framework to underscore the fact that management history has its roots in many different cultures, countries, and eras.

Global Connection: Many Japanese executives today give some of the credit for their success to a book written in 1645. The book, entitled A Book of Five Rings, was written by a samurai warrior. The book describes numerous ideas and concepts for successful competition that can be generalized to management.

2.

Early management pioneers Robert Owen was one of the first managers to show respect and dignity to workers in his factory. He implemented better working conditions, raised the minimum age for child labor, reduced hours, and supplied meals.

Charles Babbage applied mathematical principles to find ways to make the most efficient use of facilities and materials. He also advocated division of labor.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Global Connection: Note that many of the early management pioneers were British. One reason is that the Industrial Revolution advanced in England more quickly than in most other parts of the world.

Extra Example: Note that the very first introductory management textbook (Principles of Management, by George Terry) was published in 1953, over 40 years ago.

Extra Example: Andrew Ure was one of the world‘s first professors to teach management principles at Anderson‘s College in Glasgow.

II.

THE CLASSICAL MANAGEMENT PERSPECTIVE The classical management perspective consists of two distinct branches – scientific management and administrative management.

A.

Scientific Management Scientific management focuses on ways to improve the performance of individual workers.

Frederick W. Taylor saw workers soldiering, or deliberately working beneath their potential.

He designed a four-step method to overcome this problem—breaking the job into small tasks, selecting and training the best employees, monitoring to ensure compliance, then replace employees who do not show high achievement.

Discussion Starter: Ask students if they have ever observed soldiering. Ask them if they have ever been ―guilty‖ of such behavior themselves.

Extra Example: Frederick Taylor applied many of the concepts of scientific management to his favorite sports, lawn tennis and croquet.

Discussion Starter: As noted in the text, Taylor apparently falsified some of his results.

In what ways, if any, does this diminish his contributions to the field of management?

The Gilbreths, a husband and wife team, also helped find more efficient ways for workers to produce output. Frank Gilbreth made his most important contribution in the field of bricklaying. He changed an 18-step process into a 5-step process and increased productivity by about 200 percent.

Extra Example: Another area in which Frank and Lillian Gilbreth made substantial contributions was in assisting the handicapped. In particular, they helped develop vocational training methods for assisting disabled veterans.

Henry Gantt introduced the Gantt chart, which is a way to schedule work. This type of chart is still used today.

Harrington Emerson was an advocate of specialized management roles in organizations. He testified before the Interstate Commerce Commission that the railroad could save $1 million a day by using scientific management.

Extra Example: Other businesses today that rely heavily on scientific management concepts include poultry processing plants and recycling centers that sort glasses, plastics, and papers into different categories.

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Management 12e by Ricky W. Griffin B.

Administrative Management Administrative management focuses on managing the total organization.

Henri Fayol was the first to identify the four management functions—planning, organizing, leading, and controlling—and he developed guidelines for managers to follow.

Cross-Reference: In addition to Fayol, many other writers over the years have attempted to develop so-called principles, rules, or guidelines for management. However, these principles have never been widely applicable for reasons discussed later in the chapter.

Lyndall Urwick is best known for integrating scientific management with administrative management.

Max Weber outlined the concept of bureaucracy based on a rational set of guidelines for structuring organizations in the most efficient manner. His work is the foundation of contemporary organization theory.

Global Connection: Again, note the influence of foreign scholars. For example, Fayol was French, Urwick was British, and Weber was German.

Cross-Reference: Weber‘s work is discussed in more detail in Chapter 12.

Chester Barnard wrote in a book called The Functions of the Executive about the acceptance of authority and how managers get employees to do what they ask.

C.

The Classical Management Perspective Today Teaching Tip: Table 2.1 summarizes the contributions and limitations of the classical management perspective.

Contributions: (1) (2) (3) Limitations:

(1) (2) (3)

Laid the foundation for management theory Identified key processes, functions, and skills of managers that are still important today Made management a valid subject of scientific inquiry Best used in simple, stable organizations Provided universal procedures that are not appropriate in all settings Most viewed employees as tools rather than as resources

III. THE BEHAVIORAL MANAGEMENT PERSPECTIVE The behavioral management perspective emphasizes individual attitudes and behaviors and group processes.

Hugo Munsterberg applied psychological concepts to industrial settings, founding the field of industrial psychology around 1900. He suggested psychologists could make valuable contributions to managers in the areas of employee selection and motivation.

Global Connection: Again, note the international influence on management as evidenced by Hugo Munsterberg, a German psychologist.

Another pioneer of behavioral management was Mary Parker Follett.

A.

The Hawthorne Studies

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment The Hawthorne studies were held at Western Electric and sponsored by General Electric. Elton Mayo and his colleagues controlled the lighting in one room of workers but not in another.

When the illumination was increased in the experimental group, productivity increased in both groups. The increase in productivity was attributed to the fact that the workers were having extra attention paid to them, maybe for the first time.

Other studies found that employees will not work as fast as they can when being paid piecework wages. Instead, they will perform to the level informally set by the group in order to be accepted by the group. These two studies, and others, led Mayo to the conclusion that individual and social processes play a major role in shaping employee attitudes and behavior at work.

Discussion Starter: Recent evidence suggests that important details about the Hawthorne studies were not reported properly. For example, all the workers in the illumination study were paid extra for participating. What, if any, implications might be drawn from this?

B.

The Human Relations Movement The human relations movement stemmed from the Hawthorne studies. The movement argued that workers respond primarily to the social context of the workplace, including social conditioning, group norms, and interpersonal dynamics. A basic assumption is that a manager‘s concern for workers will lead to their increased satisfaction and improved performance.

The movement includes the need theories of motivation, such as Maslow‘s hierarchy of needs, and McGregor‘s Theory X, a negative view of workers based on scientific management and Theory Y, a positive view based on behavioral approaches.

Teaching Tip: Use Table 2.2 to summarize Theory X and Theory Y. Cross-Reference: Maslow‘s theory is discussed in more detail in Chapter 15.

C.

The Emergence of Organizational Behavior The emergence of organizational behavior occurred because of the too-simplistic descriptions of work behavior by the human relationists. Organizational behavior takes a holistic view of behavior by addressing individual, group, and organizational processes.

Extra Example: Many business programs today have separate courses in organizational behavior. If your school has such a course, identify its number and title for your students and briefly review its topical coverage (i.e., its course description).

D.

The Behavioral Management Perspective Today Teaching Tip: Table 2.3 summarizes the contributions and limitations of the behavioral management perspective.

Contributions: (1)

Limitations:

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(2) (3) (1) (2) (3)

Gave insights into interpersonal processes such as motivation and group dynamics in organizations Focused managerial attention on these processes Challenged the view of employees as tools and not resources Prediction was difficult due to the complexity of human behavior Managers were reluctant to adopt some of the behavioral concepts Contributions were often not communicated to the practicing managers in an understandable form

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Management 12e by Ricky W. Griffin IV. THE QUANTITATIVE MANAGEMENT PERSPECTIVE The quantitative management perspective focuses on decision making, economic effectiveness, mathematical models, and the use of computers. The two branches of the quantitative approach are management science and operations management.

A.

Management Science Management science focuses specifically on the development of mathematical models. These models help organizations try out various activities with the use of a computer. Modeling can help managers determine the best way to do things, saving money and time.

B.

Operations Management Operations management is an applied form of management science that helps organizations develop techniques to produce their products and services more efficiently.

Extra Example: Many business programs today have separate courses in management science and/or operations management. If your school has either or both courses, identify them by number and title for your students and briefly review their topical coverage.

Cross-Reference: Operations management is discussed in more detail in Chapter 20.

C.

The Quantitative Management Perspective Today Teaching Tip: Table 2.4 summarizes the contributions and limitations of the quantitative management perspective.

Contributions: (1) (2) Limitations:

(1) (2) (3)

V.

Developed sophisticated quantitative techniques to assist in decision making Increased awareness of complex processes and aided in planning and control Cannot fully explain or predict behavior of people Mathematical sophistication may come at the expense of other important skills Models may require unrealistic or unfounded assumptions

INTEGRATING PERSPECTIVES FOR MANAGERS Integrating perspectives, including the systems and contingency perspectives, bring together aspects of classical, behavioral, and quantitative approaches.

A.

The Systems Perspective A system is an interrelated set of elements functioning as a whole.

Cross-Reference: Remind your students that we introduced the concept of a system in Chapter 1 and used it as a framework for our definition of management.

An organization as an open system is composed of four elements: inputs (material or human resources), transformation processes (technological and managerial processes), outputs (products or services), and feedback (reactions from the environment).

Group Exercise: Break students up into small groups. Have them select an organization and diagram its inputs, transformation processes, outputs, and feedback mechanisms.

Open systems interact with their environment.

Closed systems do not interact with their environment.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Subsystems are systems within a broader system.

Synergy are units that are more successful working together than working alone.

Entropy is a normal process that leads to system decline.

Teaching Tip: Note the subtle but important distinction between entropy and poor management.

B.

The Contingency Perspective Appropriate managerial behavior depends on the elements of the situation.

A universal perspective tries to identify the ―one best way‖ to manage organizations.

A contingency perspective argues that universal theories cannot be applied to organizations because each is unique.

C.

An Integrating Framework Managers need to include the parts from each perspective that are relevant to their situation and apply them using both the systems and contingency approaches.

The basic premise of the integrative framework is that elements of the classical, behavioral, and quantitative perspectives may all be relevant. However, none is likely to provide a complete explanation.

Therefore, managers need to carefully assess situations and then select those elements from each perspective that can be applied.

Group Exercise: Form small groups. Have them identify a problem or opportunity facing a business or other organization. Then have them identify elements and ideas from the classical, behavioral, and quantitative perspectives that might be relevant. In addition, have them discuss how systems and contingency perspectives might affect the situation.

VI. CONTEMPORARY MANAGEMENT ISSUES AND CHALLENGES Teaching Tip: Figure 2.5 is a useful mechanism for illustrating the time frames across which different management perspectives have evolved.

A.

Contemporary Applied Perspectives The Theory Z model and the concern for excellence were important seminal work in the early 1980s. More recent advancements have been made by Peter Senge, Stephen Covey, Tom Peters, Michael Porter, John Kotter, and Gary Hamel.

Discussion Starter: Ask students if they have read—or heard of—Theory Z. Since most will not, use this fact to discuss the faddish nature of many new approaches and ideas.

B.

Contemporary Management Challenges 1. Sluggish economy 2. Globalization 3. Ethics, social responsibility, and corporate governance 4. Quality 5. Shift to service economy 6. The role and impact of social media Cross-Reference: Many of the contemporary management challenges are covered in detail in other parts of this book. For example, globalization is covered in Chapter 5.

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Management 12e by Ricky W. Griffin

END OF CHAPTER QUESTIONS Questions for Review 1.

Briefly describe the principles of scientific management and administrative management.

What assumptions are made about workers?

Scientific management uses techniques such as time-and-motion studies and piecework pay systems to increase the productivity of individual workers. Scientific management calls for observation, development of improved procedures, training, and motivating workers. Administrative management is also based on rational and scientific methods, but it focuses on the organization as a whole. Principles of administrative management include the specialization of managerial work, the development of bureaucracy, and theories about authority and control. Both scientific management and administrative management assume that workers are interchangeable and identical, that rational processes govern most behavior, and that money is the best motivator.

2.

What are the differences between the contingency and the universal perspectives on management? How is the contingency perspective useful in the practice of management today?

Contingency perspectives prescribe different approaches for different situations, while universal perspectives focus on one ―best‖ approach. For the most part, contingency perspectives are preferred by today‘s managers, because they are often better able to accommodate changes in the people, the organization, and its environment. As the environment in which businesses operate becomes ever more complex, uncertain, and dynamic, contingency perspectives are likely to be employed more and more.

3.

Describe the systems perspective. Why is a business organization considered an open system?

The systems perspective tells us that organizations are systems composed of various elements that interact in different ways. The system transforms inputs into outputs and receives feedback from its environment. Open systems interact with their environment, and therefore businesses are considered to be open systems because they interact with customers, the government, local communities, and other external elements.

4.

For each of the contemporary management challenges, give at least one example other than the examples found in the text.

An acute labor shortage is manifested in the health care industry today, where nurse and technician shortages are driving up labor costs. How to handle an aging workforce is one issue in the management of diversity. The current generation of workers is showing an increased interest in religion, as compared to older generations. Change continues to accelerate as product innovations rise sharply. Instant messaging is a fairly new form of information technology, as are personal digital assistants (PDAs). New ways of organizing include increase reliance on teamwork and virtual workplaces. Globalization continues to impact businesses—one example is the expanding membership of the European Union and the subsequent changes in those markets. Corporation‘s ethics are under increased scrutiny, following the scandals at Enron and other firms. Quality is an important challenge as businesses seek to attract a shrinking market of consumers. The U.S. and other developed countries are continuing their shift to a service economy.

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Questions for Analysis 5.

Young, innovative, or high-tech firms often adopt the strategy of ignoring history or attempting to do something radically new. In what ways might this strategy help them? In what ways might this strategy hinder them?

This strategy can be useful because it completely jettisons older systems, eliminating some of the problems they had. For example, the virtual firm is a radically different way of organizing that allows the company to call upon the best talent anywhere in the world, eliminate the expenses of maintaining a headquarters facility, and give creative workers the freedom to work in whatever way, place, and time works best for them. However, the strategy also throws out what was best about the traditional ways of doing business, which can lead to problems. For example, many virtual firms are finding that employees prefer to spend at least some time in face-to-face interaction.

6.

Can a manager use tools and techniques from several different perspectives at the same time?

For example, can a manager use both classical and behavioral perspectives? Give an example of a time when a manager did this, and explain how it enabled him or her to be effective.

As noted in the text, any given management problem may be addressed by using elements and ideas from the three major perspectives on management. The answer to this question should be based on the logic and rationale used to link the perspectives in a coordinated fashion that seems to make sense for a given situation. For instance, an example might be a manager who is more effective because he uses operations management techniques to design an efficient production line, but he also uses techniques from the behavioral management perspective to motivate his workers.

7.

Visit Amazon.com. Select the tab that reads ―See All 32 Product Categories,‖ and then choose the link for ―Books.‖ Next select the link for ―Bestsellers,‖ and click on ―Business & Investing‖ from the categories listed down the left side of the screen. Look at Amazon’s list of best-selling business books. What ideas or themes do you see in the list? Which business leaders do you see?

A current bestseller at the time of publication of this Instructor‘s Manual was Toyota Kata by Mike Rother. This book explains the Improvement Kata, which is a means for making creative work teachable. Teams using the Improvement Kata learn as they reach targets and adapt based on what they are learning. Other themes include developing your management skills, identifying your strengths, and motivating people. The biography of Elon Musk is a hot seller. Musk is the entrepreneur and innovator behind SpaceX, Tesla, and SolarCity. Musk sold one of his internet companies, PayPal, for $1.5 billion. A perennial best seller is Dale Carnegie‘s How to Win Friends and Influence People, originally published in 1936. A ‗new‘ perennial favorite is Outliers by Malcolm Gladwell. Written in 2008, this book explores the most famous and the most successful, asking the question: what makes high-achievers different?

Questions for Application 8.

Go to the library or go online and locate material about Confucius. Outline his major ideas.

Which seem to be applicable to management in the United States today?

Students should emphasize the strong ethical base of Confucius‘s teachings. Specific teachings include personal virtue, devotion to family, and the pursuit of justice. Some students may look at the use of individual motivators in organizations to ensure true work devotion for personal enhancement. Other students may use the Japanese management style, which fosters a family atmosphere in business with mutual dedication by workers and mangers.

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Management 12e by Ricky W. Griffin 9.

Find a company that has laid off a significant number of workers in the last year. (Hint: Use the word layoff as a search term on the Internet.) Investigate that company. Why did the firm make the layoffs? In your opinion, is the company likely to accomplish its intended goal by laying off so many workers? Why or why not?

Companies are usually conducting layoffs, so examples will be easy to find. For example, Intel is currently laying people off due to ‗lackluster sales‘. Disney ABC Television Group drew criticism after announcing (then reversing) layoffs of 35 tech workers. The dig here was the company laid off as many workers earlier and had the workers train their foreign replacements in sessions now known as ―knowledge transfer‖ sessions. The article does not say why Disney ABC TG was making the changes but if the reason was to cut expenses, they may have accomplished that goal but ultimately lost customers as a by-product.

10.

Read about management pioneer Frederick Taylor at www.cftech.com/BrainBank/TRIVIABITS/ FredWTaylor.html or another source. Describe Taylor’s background and experience. How does an understanding of Taylor’s early career help you to better understand his ideas about scientific management?

Taylor was born into an affluent family, who didn‘t understand his interest in applying scientific principles to the study of manual labor. He worked as a factory worker, which was very unusual for a wealthy gentleman. His observations of workers, therefore, are probably quite accurate. Given the combination of wealth and education on one hand, and practical experience in factory work on the other hand, Taylor‘s interests and drives become more clear.

END OF CHAPTER EXERCISES Building Effective Decision-Making Skills I.

Purpose This exercise is designed to help students develop their decision-making skills, emphasizing the importance of system interdependencies in organizations.

II.

Format This exercise is designed so that it can be effective when done individually or in small groups.

Answers could be written or presented to the class for evaluation. It should take less than a half hour.

III. Follow-up A. Carefully examine each of your three options. In what ways might each option affect other parts of the organization?

The option to buy lower-grade materials will require changes in purchasing, but it will also impact workers because they will have to work harder to make a good quality product from inferior materials. It may also have a major impact on sales, if the decline in quality is recognized by buyers. The lay-off option will create anxiety and resentment in those workers remaining in the firm, and it will probably raise overall wage expense, because the less-skilled workers will not work as efficiently as those who have better training. The option to purchase new equipment requires the most up-front investment, but it has the greatest potential for cost savings later.

B.

Which is the most costly option in terms of impact on other parts of the organization, not in terms of absolute dollars? Which is the least costly?

Both lay-offs and inferior materials will be very costly for the organization. The use of inferior materials may be the ―most costly‖ because it could cause customers to buy competitors‘

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment products and eventually lead to the failure of the firm. The least costly option is the purchase of new equipment. (See reasons under item 1, above).

C.

What are the primary obstacles that you might face in trying to implement each of your three options?

The option to use inferior materials may cause dissatisfaction from the workers, and will certainly cause customers‘ dissatisfaction if it is detected. The lay-off option will encounter resistance from workers, and the best, most experienced workers may leave the company for other employment. The purchase of new equipment will likely encounter resistance from the CEO or other financial personnel, based on the increase in up-front costs.

D.

Can you think of other options for accomplishing your goal of reducing costs?

Students may suggest cost-cutting ideas, such as better inventory control or improved use of information systems. They may also suggest a closer integration with suppliers or use of a less-expensive distribution channel. There are possibilities for cost savings in every functional area of the firm.

Building Effective Interpersonal Skills I.

Purpose This exercise asks you to examine your attitudes about how people regard work and how they should behave in the workplace.

II.

Format This in-class exercise involves looking at 8 items that consists of two related statements and responding to the statements in terms of how each statement reflects your attitude about how people regard work and behave in the workplace.

Student responses vary depending on their attitude toward how people regard work.

MANAGEMENT AT WORK Customer Delight The case discusses how Wells Fargo emerged from the banking crisis in better shape than competitors even though the CEO believes shareholders come last. This position runs counter to conventional wisdom of maximizing shareholder value. Steve Denning believes this same principle and offers a program for change called ―Radical Management.‖ This program is a new way of managing that generates high productivity, continuous innovation, deep job satisfaction, and customer delight. The key to Denning‘s five interlocking principles of Radical Management is ―customer delight‖. Denning believes delighting customers is the true bottom line of any business and the key to an enduring future. The text then applies Denning‘s principles to Wells Fargo who he feels has taken a few steps toward Radical Management but is a long way from ―radical.‖ He concludes Wells Fargo is satisfying their customers without yet delighting them.

1.

Case Question 1: In general, what sort of criticisms would Denning level at the behavioral management perspective? At the quantitative management perspective?

Denning may say that both perspectives focus internally when the focus should be on the customer.

The behavioral management perspective focuses on behavior of individuals and groups. If using radical management‘s ―self-organizing teams‖, individual problem behaviors would arise naturally to the attention of the manager holding the team accountable. Focus on decision making, economic effectiveness and mathematical models describe the quantitative management perspective. Denning may use tools from each perspective but only if it furthers the organization toward the ultimate goal of delighting the customer.

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Management 12e by Ricky W. Griffin 2.

Case Question 2: If your school announced that it was thinking about adopting the management goal of ―delighting customers,‖ what changes in its current management practices would you recommend? What sort of (reasonable) practices would ―delight‖ rather than merely satisfy you?

Student‘s recommendations will vary widely. Examples could include free food in the dorm cafeterias, reduced or free textbooks, and ability to enroll in classes earlier.

3.

Case Question 3: Consider the following perspectives on management practice: the quantitative perspective, the systems perspective, and the contingency perspective. Let‘s say that you‘re asked to develop a plan for shifting your company‘s management model from one of the above models to one in which the company‘s goal is ―delighting customers.‖ What sort of recommendations for change would you probably make, given the nature of your company‘s current management practices? Which current practices might be good springboards for making the shift? Which might be probable impediments to making the shift?

Denning points out on his website that Radical Management depends on adopting all changes in order to make the process work. One change without the other will not work. If in a company using quantitative management perspective, students may suggest shifting the role of managers from controlling individuals to enabling self-organizing teams. A shift from bureaucracy to dynamic linking is another suggestion. Teams with freedom to create may produce better efficiency. This system, with its focus on efficiency, would hinder creativity through bureaucratic red tape. If advising a company using the systems perspective approach, suggestions may include shifting the goals from making money for shareholders to delighting customers through continuous innovation.

This would have to include a change in values from money to innovation. The systems perspective already looks at the company as a whole, which is more conducive to Radical Management. The feedback loop, already in place, is the beginning of customer delight. In order to make the many changes needed to introduce Radical Management, an organization must be flexible. A company using contingency perspective must have flexibility and could be a good candidate for a shift to Radical Management. Suggestions may include a shift from top-down to horizontal communication and enabling of self-organizing teams.

4.

Case Question 4: Denning likens a manager who manages in the interest of shareholder value to a football coach who coaches to beat the point spread instead of winning the game. Explain the analogy in more detail. In particular, Denning claims that ―in such a world, it is hardly surprising that the corporate world is plagued by scandals.‖ Why might the management practice of maximizing shareholder value lead to questionable ethical (and even illegal) behavior among top managers?

A coach who only wants the team to beat the point spread is only serving those who gamble on the team, not the team itself. If a manager only wants to increase shareholder profit (the gamblers) then the company (team) may actually lose. If managers are only concerned with maximizing shareholder value it could lead to unethical, and even illegal, behavior. Managers may treat their employees badly in order to make short-term gains, for example. The motivation to cheat and lie is greater when those managers consider themselves accountable only to shareholders and not to their employees.

CHAPTER 3

Understanding the Organization’s Environment © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Part Two of this book is entitled UNDERSTANDING THE ENVIRONMENTAL CONTEXT OF MANAGEMENT. Its fundamental purpose is to describe the environment in which organizations and managers operate.

Part Two consists of three chapters. Chapter 3 provides an overview of the environment of business organizations, including a discussion of organization culture. Chapter 4 describes the ethical and social environment and Chapter 5 addresses the global environment.

CHAPTER SUMMARY Chapter 3 focuses on the general environmental context of management. Note from the outline that the chapter first introduces the concept of environment, discusses external and internal environments, then focuses on organization culture. The chapter continues with a discussion on the multicultural environment, including the subjects of multiculturalism and diversity. Organization-environment relationships end the chapter.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Discuss the nature of the organizational environment and identify the environments of interest to most organizations.

2.

Describe the components of the general and task environments and discuss their impact on organizations.

3.

Identify the components of the internal environment and discuss their impact on organizations.

4.

Discuss the importance and determinants of an organization‘s culture and how the culture can be managed.

5.

Describe the multicultural environment of business and identify major trends and dimensions of diversity and multiculturalism.

6.

Identify and describe how the environment affects organizations and how organizations adapt to their environment.

MANAGEMENT IN ACTION Putting Miscommunication in Context The opening case outlines several cultural miscommunication examples including communications between high-context cultures (Japan) and low-context cultures (U.S.). The case speaks specifically about cross-cultural information exchanges and differences in cultural context in both a formal and a business setting.

Discussion Starter: Ask students if they have any examples of other cultural differences.

How can a person minimize the differences? Should the person expecting a certain behavior speak out? Would this lessen miscommunication?

LECTURE OUTLINE Managers must develop and maintain a deep understanding and appreciation of the environment in which they and their organization function.

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Management 12e by Ricky W. Griffin

I.

THE ORGANIZATION‘S ENVIRONMENTS The external environment is everything outside an organization‘s boundaries that might affect it.

Teaching Tip: Stress the fact that an organization‘s boundaries are not always clear and precise. As a result, it may not always be clear whether a particular individual or group is part of an organization or part of its environment.

The internal environment consists of conditions and forces within the organization.

Discussion Starter: Ask students whether they think alumni, campus recruiters, and bookstores are part of the university organization or part of its environment.

Teaching Tip: Point out again the ―fuzziness‖ that may exist regarding boundaries. For example, although this book treats a corporation‘s owners as part of the internal environment, others may argue that owners are part of the external environment as well.

II.

THE EXTERNAL ENVIRONMENT The general environment of an organization is the set of broad dimensions and forces in its surroundings that create its overall context.

The task environment of an organization consists of specific organizations or groups that are likely to affect it.

A.

The General Environment Group Exercise: Divide into small groups and have each group develop a diagram similar to Figure 3.2 for an organization in a different environment. Good examples to work with include IBM, Sears, Exxon, Domino‘s Pizza, and Procter and Gamble.

The general environment of a business has five dimensions: economic, technological, sociocultural, political-legal, and international.

1.

The economic dimension is the overall health and vitality of the economic system in which the organization operates. Factors of interest include general economic growth, inflation, interest rates, and unemployment.

Management Update: Note that the generally strong economy of the United States through much of the 1990s and into 2000 slowed dramatically starting in 2008.

Companies continued to announce layoffs and closures through 2011 causing economic hardships to many communities. The economy is now slowly improving.

Extra Example: Point out to students that events in other dimensions of the general environment, such as the attacks of September 11th, have a strong impact on the economic dimension. This example highlights the interrelatedness of each of the dimensions.

Extra Example: Note how economic conditions have affected your college or university.

Specific points can be made regarding state revenues, alumni contributions, government grants, and endowment earnings.

2.

The technological dimension—refers to the methods available for converting resources into products or services.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Extra Example: Kodak was hurt by the shift to digital photography. Kodak felt that its dominance in analog photography was unshakeable. As the world moved to digital, Kodak was slow to change its strategic direction caused by the shift in technology.

3.

The sociocultural dimension—includes the customs, mores, values, and demographic characteristics of the society in which the organization functions. The sociocultural processes determine the products, services, and standards of conduct that society values.

Extra Example: Public accountability is on the rise, now applying to anyone in the public eye. Examples in sports and entertainment include Ray Rice and Bill Cosby.

4.

The political-legal dimension—refers to government regulation of business and the relationship between business and government.

Extra Example: Under the leadership of former President George W. Bush and a Republican-controlled Congress, several environmental regulations were weakened to the benefit of firms competing in the oil and gas and chemical industries.

5.

The international dimension—refers to the extent to which an organization is involved in or affected by business in other countries.

Cross-Reference: International issues are discussed in more detail in Chapter 5.

B.

The Task Environment The task environment, as defined earlier, consists of specific organizations or groups that are likely to affect the organization.

1.

Competitors are other organizations that compete for the same resources.

This can include rivals selling similar or substitute products, or firms competing for resources other than customer dollars.

Discussion Starter: Ask students to identify competitors of your college or university.

2.

Customers—whoever pays money to acquire an organization‘s product or services.

Discussion Starter: Ask students to identify the customers of your college or university.

Should parents of students be included if they are financing their child‘s education?

3.

Suppliers—organizations that provide resources for other organizations.

Discussion Starter: Ask students to identify various suppliers your college might use.

4.

Regulator—a unit in the task environment that have the potential to control, legislate, or otherwise influence an organization‘s policies and practices.

Two types of regulators are regulatory agencies and interest groups.

Regulatory agencies are created by the government to protect the public from certain business practices or to protect organizations from one another. Examples include the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA).

Extra Example: Point out to students the various regulatory agencies that most directly affect your college or university (e.g., state coordinating boards, etc.).

Interest groups are groups organized by their members to attempt to influence business.

Examples include the National Organization for Women (NOW) and Mothers Against Drunk Drivers (MADD).

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Management 12e by Ricky W. Griffin Discussion Starter: Ask students if they can identify interest groups that specifically affect your college or university.

5.

Strategic partners (also called strategic allies) are two or more companies that work together in joint ventures.

Group Exercise: The group exercise included earlier in this chapter of the instructor manual involves students identifying general environment dimensions for different companies. Repeat the exercise here using the same organizations but instead focus on identifying dimensions and examples of the task environment.

III. THE INTERNAL ENVIRONMENT A.

Owners Owners are whoever can claim property rights on an organization. In smaller businesses, the owner is likely also to be the manager. In a larger business, however, managers are more likely to be professional employees of the firm, while owners are typically shareholders.

Teaching Tip: Stress for students the significance of institutional owners and investors in corporations. Such owners and investors can exert enormous power over a corporation.

B.

Board of Directors A board of directors is required of organizations that are incorporated; however, many other firms have them. The board of directors is a governing body elected by the stockholders and charged with overseeing the general management of the firm to ensure that it is being run in a way that best serves the stockholders‘ interests.

Extra Example: Starting in 2002, directors at Enron Corporation heard reports from auditors about the risks inherent in Enron‘s aggressive and unorthodox accounting methods. The board of directors ignored the warnings and were later blamed for the subsequent collapse of the firm.

Group Exercise: Assign groups of students to a company and have them identify the members who serve on its board of directors. Are the members likely to provide an effective oversight in protecting stockholders‘ interests? Why or why not?

C.

Employees Employee issues today include coping with increasing diversity, the use of ―temp‖ workers, and the changing role of labor unions.

Global Connection: Note that Japanese firms used to offer guaranteed lifetime employment. In recent years, many Japanese firms have abandoned this practice.

D.

Physical Work Environment The physical work environment includes the facility location as well as its design and layout.

The physical environment communicates an important symbolic message about the firm.

Extra Example: Note that the recent trend toward home offices, telecommuting, and similar alternative work arrangements all relate to the physical work environment.

IV. THE ORGANIZATION‘S CULTURE

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Organization culture is the set of values, beliefs, behaviors, customs, and attitudes that helps an organization‘s members understand what it stands for, how it does things, and what it considers important.

A.

The Importance of Organization Culture A strong organization culture can shape the firm‘s overall effectiveness and long-term success and help employees be more productive.

Extra Example: Firms with strong cultures: GE, 3M, Coca-Cola, UPS, and Apple.

Discussion Starter: Have students discuss the culture in your college or university.

B.

Determinants of Organization Culture Culture develops and blossoms over a long period of time. It often starts with the organization‘s founder; however, corporate success and shared experiences also shape organization culture.

Extra Example: Founder and CEO Michael Dell has made a strong imprint on Dell‘s culture, which expresses the youthful enthusiasm and focus on efficiency of its leader.

C.

Managing Organization Culture In order to manage corporate culture, managers must first understand the current culture.

If the culture is one that is in the best interests of the firm, managers can reward behavior that is consistent with the existing culture in order to reinforce it.

If the culture needs to be changed, managers must know what kind of culture they want and then bring in outside people for top management jobs, adopt new slogans, or tell new stories— among other things—to achieve that goal.

Cross-Reference: Note that we discuss change in Chapter 12.

V.

THE MULTICULTURAL ENVIRONMENT In addition to the external and internal environments there are also other important elements in the environment relating to multiculturalism and diversity.

Multiculturalism is the broad issues associated with differences in values, beliefs, behaviors, customs, and attitudes held by people in different cultures.

Diversity exists in a group or organization when its members differ from one another along one or more important dimensions, such as age, gender, or ethnicity.

Organization culture, multiculturalism, and diversity are closely related concepts.

Discussion Starter: Ask students to debate the following question: ―Are all organizations diverse?‖ One approach is to think of organizational examples that support or contradict the students‘ responses. Another approach would focus on the dimensions of diversity—the extent of diversity depends on how diversity is defined.

A.

Trends in Diversity and Multiculturalism Organizations today are becoming more diverse due to a variety of reasons.

1.

2.

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The demographics of the labor market are changing so that employees are more likely to be female, an ethnic minority, and older.

Organizations seek out more diverse employees because of an increased awareness that diversity improves the quality of the workforce.

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Management 12e by Ricky W. Griffin 3.

4.

B.

Legislation and legal action have required organizations to be more diverse.

Globalization has contributed to more diversity in organizations as employees cross national boundaries more often.

Dimensions of Diversity and Multiculturalism Teaching Tip: Note the various observable dimensions of diversity that are present in your classroom. Note the additional dimensions that may exist but that are not observable (i.e., religion, dietary preferences, political beliefs, etc.).

Teaching Tip: Stress the fact that diversity is a continuum. No group will be absolutely diverse because people will always have something in common. At the same time, since no two people are exactly the same, some diversity will always be present in every group.

Cross-Reference: Note that the topic of individual differences, a construct related to diversity, is discussed from other perspectives in Chapter 14.

5.

6.

Age distributions—The average age of the U.S. workforce is gradually and continually increasing due to declining birthrates, the aging of the baby-boomers, improved health care that extends workers‘ productive life, and fewer people having sufficient savings to pay for retirement.

Gender—The number of females in the workforce is increasing while the number of males is shrinking. Women face special problems in the workforce such as glass ceilings.

A glass ceiling is a barrier that keeps females from advancing to top management positions in many organizations.

Extra Example: There has been an increasing number of women rising to the top ranks in large companies. Examples include CEO Irene Rosenfeld of Mondelez International (Kraft Foods), Ursula Burns CEO of Xerox and Indra Nooyi CEO of PepsiCo. 7.

Ethnicity— refers to the ethnic composition of a group or organization. Diversity is increasing in the American labor pool, but minorities still face barriers to advancement.

8.

Other dimensions of diversity include physical mobility, religion, single parents, dualcareer marriages, alternative lifestyles, vegetarianism, and political ideologies.

Teaching Tip: The Americans with Disabilities Act has made organizations even more concerned with disability status as a dimension of diversity.

9.

Multicultural differences may manifest themselves in organizations as a result of immigration patterns and/or international expansion.

Discussion Starter: Some people view diversity as a fundamental management issue.

Others see it as a faddish issue associated with political correctness. Students‘ views?

Interesting Quote: ―The whole point of managing diversity is to draw on the uniqueness of each employee. If people feel that they must censor what they say and how they act, the major benefit of diversity is lost.‖ (Robert Lattimer, diversity consultant, Fortune, August 8, 1994, 80.)

VI. ORGANIZATION-ENVIRONMENT RELATIONSHIPS A.

How Environments Affect Organizations There are three basic perspectives for describing how environments affect organizations.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment 1.

Environmental change and complexity—The rate of change (a great amount (dynamic) or a little amount (stable)) and the degree of homogeneity of the environment (simple (few elements, little segmentation) or complex (many elements, much segmentation)) combine to determine the level of uncertainty an organization faces. The least amount of environment uncertainty is found in organizations with stable, simple environments, whereas the greatest environmental uncertainty is found in organizational environments that are dynamic and complex.

Teaching Tip: Students sometimes have trouble with the distinction between degree of change, degree of homogeneity, and uncertainty. Make an extra effort to ensure that students understand their differences before proceeding. Use Figure 3.6 as a visual aid.

Discussion Starter: Ask students to identify other examples of organizations that fit into each cell of Thompson‘s model. (Figure 3.6) Discussion Starter: Ask students to think about organizations that may have recently moved from one cell to another cell. That is, identify organizations that have experienced changes in their relative degree of environmental uncertainty.

2.

Five Competitive forces a) The threat of new entrants is the extent to which new competitors can easily enter the market or market segment. b) Competitive rivalry is the nature of the competitive relationship between dominant firms in the industry. c) The threat of substitute products is the extent to which alternative products or services may supplant or diminish the need for existing products or services. d) The power of buyers is the extent to which buyers of the products or services in an industry have the ability to influence the suppliers. e) The power of suppliers is the extent to which suppliers have the ability to influence potential buyers.

Group Exercise: Have students working in small groups identify other examples of organizations for which the various competitive forces are especially relevant.

3.

Environmental turbulence consists of changes in the organization‘s environment that may or may not be expected. Crisis is the most common form of turbulence.

Discussion Starter: Ask students to identify recent examples of organizational crises that managers have had to confront.

B.

How Organizations Adapt to Their Environments Organizations are not totally at the mercy of their environments. Indeed, several options exist through which they may adapt to, or directly influence, their environments.

Teaching Tip: Discuss Figure 3.7 as a summary framework for understanding how organizations adapt to their environments.

Cross-Reference: Note that social responsibility is given more coverage in Chapter 4.

1.

Information management—collecting, monitoring, and reading the information available to the firm. There are various techniques available to manage information. a)

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Boundary spanner—someone who spends much of his or her time in contact with others outside the organization.

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Management 12e by Ricky W. Griffin b)

2.

Environmental scanning—process of actively monitoring the environment through activities such as observation and reading. c) Information systems—electronic systems designed to gather and organize relevant information for managers and assist in summarizing that information in the form most pertinent to each manager‘s needs.

Strategic response—realizing that something has changed and determining what action, if any, should be taken to deal with the change.

Cross-Reference: Strategic response is discussed more fully in Chapter 7.

3.

Mergers, acquisitions, and alliances a) A merger occurs when two or more firms combine to form a new firm.

Extra Example: Other examples include the joining of Newell and Rubbermaid, and the merger of Chrysler with Daimler-Benz that created DaimlerChrysler. b)

c)

An acquisition occurs when one firm buys another but the acquired firm may operate as a subsidiary of the acquiring firm. Most acquisitions are friendly.

However, one type of acquisition, a hostile takeover, occurs when one firm buys another against its will, and folds it into the buying firm‘s organization. The firm that is taken over ceases to exist.

In an alliance (also called a partnership), the firm undertakes a new venture with another firm.

Global Connection: Most airlines enter into alliances with travel-related businesses overseas in order to increase their ability to serve customers traveling across borders. For example, American Airlines has relationships with British Airways, Hong-Kong-based Cathay Pacific, and Finnair, as well as hotels, car rental agencies, and cruise lines.

4.

Organization design and flexibility—how an organization designs its structure.

Organizations can select a tightly monitored design in a stable environment or a less tightly monitored one in a dynamic environment.

Extra Example: Under the leadership of former CEO, Anne Mulcahy, Xerox changed its organization design in an effort to become more flexible and adaptive.

5.

Direct influence of the environment—Firms may try to influence their environments. For example, firms can sign long-term contracts with suppliers to control prices, or acquire firms that produce their needed resources in order to ensure a continuous supply.

Discussion Starter: Ask students for examples to illustrate how organizations can influence their environments.

Discussion Starter: Ask students to think of organizations that are more likely or less likely to be able to influence their environments.

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END OF CHAPTER QUESTIONS Questions for Review 1.

Consider the three environments of a firm. Which of the environments has the most direct and immediate impact on the firm? Which of the environments has a more diffuse and delayed impact? Explain.

The internal environment, because it consists of various groups within the organization, has the most direct and immediate impact on the firm. The task environment consists of those who interact closely with the firm, such as customers and suppliers, and therefore, has a fairly direct impact on the firm. The general environment has the most diffuse and delayed impact. It consists of trends and events that are impacting all firms, not just one particular firm.

2.

Describe the organization’s general environment. For each dimension, give at least one specific example, other than the examples mentioned in your text.

The general environment has five dimensions. The international dimension includes events such as the formation and expansion of the European Union. The technological dimension refers to innovative products, such as robotics. The political-legal dimension consists of events such as the change of leadership in Congress from Republican to Democratic. The sociocultural dimension is made up of trends such as the increasing patriotism of many Americans. The economic dimension reflects events and trends including the sharp decline in the value of the U.S. stock market.

3.

What is diversity? Why is it increasing?

Diversity exists in a group or organization when its members differ from one another along one or more important dimensions, such as age, gender, or ethnicity. The level of diversity falls on a continuum in terms of degree or level of diversity along relevant dimensions. Diversity is increasing due to more women in the workforce; recognition that diversity improves overall quality of the workforce; laws and regulations, and increased multiculturalism.

4.

What are the major forces that affect organization-environment relationships? Describe those factors.

Environmental factors that affect an organization include the degree of uncertainty that exists (as defined by the degree of change and the degree of homogeneity), Porter‘s five competitive forces, and environmental turbulence.

Questions for Analysis 5.

Elements from the general environment affect all organizations, but they may not affect all organizations in the same way. Choose an industry and discuss the impact of at least two different elements from the general environment on firms in that industry. Are all firms affected equally? Explain.

Students‘ answers will depend on the industry they choose. Here is an example answer: ―In the auto manufacturing industry, the aging of the population (a sociocultural trend) has resulted in a move away from inexpensive, small, and sporty models towards larger, more conservative designs that include many safety, comfort, and luxury features. However, some automakers are focusing on the desire to appear more youthful that some aging drivers feel. These manufacturers‘ designs provide a sporty, young look and driving experience, while still offering luxury features.‖

6.

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Which of the firm’s environments is most readily changed by the firm? Which of the firm’s environments is least amenable to change by the firm? How does this influence the actions that firms take?

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Management 12e by Ricky W. Griffin Firms have the most control over the internal environment, some degree of control over the task environment, and little impact on the general environment. Therefore, when faced with the necessity of change, they most often change factors in the internal environment, such as their workforce, governance, facilities, finances, or culture. Firms will also at times work to change their task environment, such as when companies attempt to influence customers through advertising. Firms do attempt to change their general environment through political lobbying, for example. However, these efforts often receive a relatively small share of resources because the outcomes are so uncertain.

Questions for Application 7.

Go to Hoover’s Online at www.hoovers.com. Enter a company name in the Search boxes.

When that company’s profile is shown, go to ―Top Competitors.‖ Here you can learn who the firm’s top competitors are. Were you surprised by the list? How do you think Hoover’s determines the list?

If, for example, a student searched for the competitors for Boeing, Hoover‘s Online would identify Airbus and Lockheed Martin. For the most part, students should not be too surprised–they typically will recognize and understand the logic behind the list of competitors. Among other things, Hoover‘s uses NAICS codes (the updated version of the SIC codes) to choose competitors. If students are unaware of NAICS codes, you can educate them. One good source for information about NAICS is at the U.S. Census Department, which creates the codes. Students can begin at the web site http://www.census.gov/epcd/www/naics.html.

8.

Attention has recently been focused on the lack of diversity in many high-tech companies.

Select one company, such as Google, Facebook, Yahoo!, or a similar firm, and research what that company is doing to promote diversity.

Students‘ answers will vary depending on the company selected. An example could be Google pledging to invest $150 million in workplace diversity in 2015, up from $115 million in 2014.

Google has increased recruitment of women and minorities. There are similar initiatives at other high-tech companies.

9.

Interview a manager from a local organization about his or her organization’s internal environment, including owners, directors, employees, the physical work environment, and the organization culture. How do these various elements interact?

Answers should include some information about every aspect of the internal environment. Students will find that elements of the internal environment have significant interactions. For example, if the organization begins to hire more young employees (a change in the workforce), then it may experience a change in its organizational culture. It may also have to change its training, compensation, physical layout, products, and processes.

10.

Consider an organization with which you are familiar. Outline its environments in detail.

Then provide specific examples to illustrate how each dimension affects your organization.

Students‘ answers will vary, of course, but should include a description of every element and an appropriate example.

END OF CHAPTER EXERCISES Building Effective Time Management Skills I.

Purpose

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment This exercise is designed to help students develop their understanding of time-management skills by asking them to think about the types of tasks that a typical manager would face and then assign priorities to those tasks.

II.

Format The design of this exercise includes both individual and group activities. Have students complete the exercise individually then share their answers with a small group or with the whole class. The entire exercise should take about 20 to 30 minutes.

III. Follow-Up There are no follow-up questions for this exercise, but ask students to describe what factors they considered as they prioritized items. If any disagreement arose within the group about the priorities, students should discuss the reasons for the disagreement.

Building Effective Communication Skills I.

Purpose This exercise assigns students the difficult—but realistic—task of persuading a superior that his or her ideas may be inadequate. The task requires students to justify the need to gather more information about the customer segment of the environment.

II.

Format This exercise is best done outside of class by individual students, and it requires about 20–30 minutes.

III. Follow-Up A. Go back to your office (or your dorm room, the library, or your kitchen table) and compose a written proposal for your boss in which you outline your position on developing a customer needs survey. Be sure that your proposal accomplishes two goals: (1) it emphasizes your fundamental concern – namely, that in order to provide products that meet customer needs, the marketing department must better understand what those needs are; and (2) it communicates some good reasons why the marketing department should follow through on your proposal.

(Hint: Telling him bluntly that he‘s wrong is unlikely to be effective.)

Students‘ answers will focus on the importance of understanding the specific needs of various groups of consumers. Students are likely to describe the importance of consumers to the firm, the necessity for obtaining accurate and specific feedback, and the likely negative consequences of ignoring consumer feedback. The challenge for students will be to present their position in a forceful yet tactful way.

B.

Now review what you‘ve written. Do you think your boss will change his mind? If yes, which of your reasons is most likely to persuade him? If no, what might be your next move in trying to get your proposal a fair hearing from management?

Students‘ answers will vary. They will see that persuasion requires tact as well as strong logical arguments. For additional actions, students might suggest an appeal to a superior, gathering the feedback anyway without informing the boss, or simply dropping the idea. For each of these actions, ask students to consider what would happen then. For example, how would their boss respond to finding out that he had been deceived?

MANAGEMENT AT WORK the Canary in the Coal Mine Starbucks has taken steps to establish itself as a leading sustainable brand. Fundamental changes include changes to the mission, values, and culture. Starbucks plans to reduce their carbon footprint through a xxxviii

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Management 12e by Ricky W. Griffin series of realistic goals, including: recycling of their disposable cups, reducing in-store water consumption, building and/or remodeling using LEED certifications, and ―ethically sourcing‖ 100 percent of their coffee. Starbucks views sustainability as a matter of business survival as they believe global warming could harm future coffee crops. Because coffee only grows in regions susceptible to climate change, Starbucks sees itself as the ‗canary in the coal mine‘ for the coffee industry. Meaning their organization would be one of the first to perish if global coffee crops become unsustainable.

Management Update: Starbucks offers an annual update with graphic representations of each goal. As of 2014 report, Starbucks sourced 96 percent of their coffee was ethically sourced and they surpassed their goal for LEED certified stores.

1.

Case Question 1: The term sustainability refers generally to the maintenance and preservation of systems and processes. At what types of systems and processes are Starbucks‘ sustainability efforts directed?

Starbucks‘ is directing their attention at the supply chain, requiring sustainable growing practices.

They are also concentrating on their operations, using less water and building new stores using LEED certification. Starbucks is also concerned with post-production waste, aiming at customer recycling programs.

2.

Case Question 2: In what ways might Starbucks‘ sustainability efforts be affected by events in each dimension of its general external environment – economic, technological, sociocultural, political-legal, and international? In which dimensions can the company be most proactive in taking steps toward its sustainability goals? In which dimensions are events most likely to necessitate reactive steps?

Starbucks is a luxury item and one of the first items cut from personal budgets when money is tight.

An economic downturn could lead to lower sales. Less demand would mean less investment in the coffee-growing communities Starbucks supports. The technological environment may improve their ability to conserve water and other resources. Improved conservation methods could mean Starbucks meets their goals sooner. The sociocultural aspect of the general environment looks good for Starbucks. Raised awareness of global conservation means their message of sustainability should set well with customers. The political-legal environment could help or hinder Starbucks.

The U.S. has many government initiatives and tax-breaks for businesses who wish to conserve.

Instability in the coffee-growing countries could hinder efforts. The international aspect could have ramifications if they cause unrest in supplier countries. Starbucks has the best opportunity for proactive measures in the political-legal environment. Establishing solid relationships with government leaders in their supply countries could prove beneficial. Starbucks should be following developments and laws in both the U.S. and their supplier countries.

3.

Case Question 3: In what ways might each group in Starbucks‘ task environment – competitors, customers, suppliers, strategic partners, and regulators – be involved in its sustainability efforts?

Be sure to include competitors in your answer. List each group in order of its importance to Starbucks‘ sustainability efforts; explain your ranking.

Student‘s answers may vary. One possible ranking is suppliers, strategic partners, customers, competitors, and regulators. Suppliers seem the most imperative for meeting sustainability efforts as Starbucks‘ goal is ethically sourcing 100 percent of its coffee. Strategic partners are next as they certify such ethical sourcing. Starbucks is counting on customers voluntarily recycling used cups.

They are also counting on customers to care enough about sustainability to choose them over competitors. Competitors may play a unique role in either joining Starbucks‘ sustainability efforts or ignoring them. For instance, the higher the demand for ethically grown coffee, the better for the overall growing environment. Competitors who use ethically grown coffee are direct competitors as

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment the amount of ethically grown coffee is limited. Regulators uphold accountability and offer legitimacy to Starbucks‘ sustainability claims.

4.

Case Question 4: According to Ben Packard: ―One of the strengths of Starbucks‘ culture is treating the people and places where our products come from and are served in a better way.

Not delivering on that vision and mission would be a problem in the culture of this company.‖ Why is the management of its culture important to the success of the company‘s sustainability efforts? In what ways can Starbucks work to ensure that the values reflected in its sustainability commitment are embraced by members of the organization?

Culture determines the ―feel‖ of the organization. Starbucks wants customers and other shareholders to think of sustainability when they envision the company. Since sustainability is a relatively new concept for Starbucks, management must manage the culture carefully. One way for Starbucks to underline its sustainability commitment is bringing outsiders in at upper management positions. These managers should have a proven track record of incorporating sustainability measures into operations.

CHAPTER 4

Responding to the Ethical and Social Environment CHAPTER SUMMARY This chapter explores the ethical and social context of management. The basic topics of discussion include ethics and ethical issues, the nature of social responsibility, the relationship between organizations and governments, and the management of social responsibility.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Discuss managerial ethics, three areas of special ethical concern for managers, and how organizations manage ethical behavior.

2.

Identify and summarize key emerging ethical issues in organizations today.

3.

Discuss the concept of social responsibility, specify to whom or what an organization might be considered responsible, and describe four types of organizational approaches to social responsibility.

4.

Explain the relationship between the government and organizations regarding social responsibility.

5.

Describe some of the activities that organizations may engage in to manage social responsibility.

MANAGEMENT IN ACTION Management by Objectionable Behavior xl

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Management 12e by Ricky W. Griffin The opening case concerns American Apparel and the attempted ouster of their founder and CEO Dov Charney for misconduct. At the time of the attempted ouster, the company had not posted a profit in four years. The board cited Charney‘s sexual misconduct, and the resulting lawsuits, as the main reason for financial trouble. Charney refused to resign from the company he founded.

Management Update: American Apparel finally ousted Dov Charney in December of 2014. Charney promptly filed over two dozen lawsuits against the company. American Apparel named Paula Schneider as the new CEO and began a $30 million cost-cutting program. They hold a restraining order on Charney, preventing him from making negative comments to the press.

LECTURE OUTLINE I.

INDIVIDUAL ETHICS IN ORGANIZATIONS Ethics are an individual‘s personal beliefs regarding right and wrong behavior.

The authors define ethics in the context of the individual. People have ethics; organizations do not.

Ethical behavior varies from one person to another.

Ethical behavior is behavior that conforms to generally accepted social norms.

Unethical behavior is behavior that does not conform to generally accepted social norms.

Many factors contribute to an individual‘s ethics: family, peers, individual events, values and morals.

Cross-Reference: Note that ethical and social responsibility issues are reflected in the sociocultural dimension of an organization‘s general environment, discussed in Chapter 3.

Discussion Starter: A debate in some business programs is the extent to which colleges can teach ethics. Some experts believe that ethics can indeed be taught, whereas other experts believe that ethics are formed early and thus cannot be taught. Students views?

A.

Managerial Ethics Interesting Quote: ―Moral character is shaped by family, church, and education long before an individual joins a company to make a living.‖ (Kenneth R. Andrews, Harvard Business Review, October 1989, 99.)

Managerial ethics are standards for behavior that guide individual managers in their work.

1.

How an organization treats its employees Managers‘ ethical standards with respect to hiring, firing, wages, and working conditions must be high when dealing with employees.

Discussion Starter: Ask students to provide examples in which an organization they worked for treated them in an ethical or an unethical fashion.

Teaching Tip: Note that as organizations enter a period of cutbacks and downsizing, the potential for unethical treatment of employees tends to increase.

2.

How employees treat the organization

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment The ethical standards of an individual may conflict with the organization‘s policies with respect to interest, secrecy, honesty, and expense accounts.

Discussion Starter: Note that many corporate scandals, such as those at Tyco, Enron and WorldCom, are allegedly cases of individual misdeeds in defiance of corporate policies.

Ask students whether they believe an organization can distance itself from the actions of its workers or whether the organization must somehow be responsible for creating an environment in which unethical conduct can occur. Consider the opening case and American Apparel attempting to distance itself from Dov Charney.

3.

How employees and the organizations treat other economic agents Managers also must have high ethical standards when dealing with customers, competitors, stockholders, suppliers, dealers, and unions. It is important for managers to supply truthful, clear communications with these economic agents in order to behave ethically.

Discussion Starter: Again, solicit student experiences regarding their treatment of another organization and/or the treatment of their employer toward another organization.

Global Connection: The U. S. is not alone dealing with ethical scandals. Scandals have plagued Japan in recent years. In one instance, several large investment houses were charged with providing illegal kickbacks to major clients to cover their investment losses.

B.

Ethics in an Organizational Context Unethical behavior occurs most often in an organizational context that is conducive to such behavior. Actions of peers, top managers, and the organization‘s culture, all contribute to the ethical context of the organization. Employees who work for firms that support and encourage unethical acts, though they are in the best interests of the firm, may find themselves in a conflict-of-interest situation.

Discussion Starter: Ask students their opinion of the comment made by Wallner, a Hypercom executive, regarding a manager who is apparently committing unethical actions: ―He [is] bringing in $70 million a year. Do you fire your number one rock star because he‘s difficult?‖ Do the students agree? Why or why not?

C.

Managing Ethical Behavior Top managers are responsible for setting the ethical standards for an organization. Committees can be formed to investigate possible unethical activities internally, and employees can attend training sessions to learn to act more ethically when faced with certain situations.

1.

Creating Ethics Codes A code of ethics is a formal written statement of the values and ethical standards that guide the firm‘s actions. Firms must adhere to the code if it is to be of any value.

Teaching Tip: If your school has a code of ethical conduct for students, it might be interesting to discuss it here. Note, for example, the similarities and differences that might exist between a university code and a business code.

Extra Example: Codes of ethics at: Motorola, Coca-Cola, and Texas Instruments.

Group Exercise: Ask students to identify what common themes and ideas are likely to be reflected in all corporate codes of ethics.

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Management 12e by Ricky W. Griffin 2.

Applying Moral Judgment Experts suggest managers follow the three-step model when applying ethical judgment to business situations. a. Gather the relevant factual information, b. Determine the most appropriate moral values, and c. Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy.

Other principles that come into play include various ethical norms, including utility, rights, justice, and caring. Utility asks whether the act optimizes outcomes for constituencies. Rights is concerned with whether an act respects the rights of the individuals involved. Justice means consistent and fair. Caring considers whether an act is consistent with people‘s responsibilities to each other.

3.

Maintaining Organizational Justice Organizational justice refers to the perceptions of people in an organization regarding fairness.

The four basic forms of organizational justice are: distributive; procedural; interpersonal; and informational.

Distributive justice is people‘s perceptions of the fairness with which rewards are distributed within the organization.

Procedural justice are individual perceptions of the fairness used to determine various outcomes.

Interpersonal justice relates to the degree of fairness people see in how they are treated by others in their organization.‘ Informational justice refers to the perceived fairness of information used to arrive at decisions.

II.

EMERGING ETHICAL ISSUES IN ORGANIZATIONS A.

Ethical Leadership 1. Leaders set the ethical tone for the organization.

2. The Sarbanes-Oxley Act of 2002 requires top managers to personally vouch for the truthfulness of their firm‘s financial disclosures and imposes significant penalties for violations.

B.

Ethical Issues in Corporate Governance To provide adequate corporate governance, boards of directors must be independent of management influence, as well as familiar with the firm and its industry.

C.

Ethical Issues in Information Technology Online privacy is an important emerging area of ethical concern.

III. SOCIAL RESPONSIBILITY AND ORGANIZATIONS Social responsibility is the set of obligations an organization assumes to protect and enhance the society in which it functions.

A.

Areas of Social Responsibility

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment 1.

Organizational stakeholders—people and organizations that are directly affected by the practices of an organization and that have a stake in its performance. Figure 4.3 names all of the various constituents.

Most companies concentrate on three main groups: customers, employees, and investors.

They then select other relevant or important stakeholders and attempt to address their needs.

Cross-Reference: Note the similarities between the concept of constituents and that of task environments as discussed in Chapter 3.

Group Exercise: Have students develop a ―map‖ similar to Figure 4.3 showing the constituents of an organization, such as your college or university, a local business, etc.

2.

The natural environment—Laws now regulate how far a company can go with respect to the natural environment. Previously, companies dumped sewage, waste products, and trash anywhere they could. Although many of the problems have been reduced or eliminated, there are still major problems facing the natural environment.

Global Connection: Note that environmental concerns are greater in some countries than they are in the United States. Germany, for example, has very strict environmental protection laws. Other countries concerns for the environment are given low priority.

The clearing of the rain forests in the Amazon basin is one significant example. Another is the continued destruction of animals facing extinction in parts of Africa.

Extra Example: Organizations with significant commitment to the natural environment are discovering an unusual strategy—lobbying the government for stricter regulation.

Examples include Honda, which makes an efficient and clean solar-electric car, and Stoneyfield Farm, the nation‘s largest maker of pesticide-free organic yogurt.

3.

B.

General social welfare—Organizations also can promote the general social welfare by contributing to charities, philanthropic organizations, and not-for-profit foundations and associations, among other ways.

Arguments For and Against Social Responsibility 1. Arguments for social responsibility—There are four main reasons to support social responsibility: a) Businesses create problems and therefore should be responsible for solving them. b) Corporations are citizens in our society, too, and should not avoid their obligations as citizens. c) Businesses have the resources to help. d) Businesses can profit from social responsibility if consumers are aware of their efforts. (Businesses can also lose profits if they are not socially responsible.)

Discussion Starter: Ask students to help identify specific examples of how socially responsible behavior has had a positive impact.

2.

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Arguments against social responsibility—There are also four reasons often given against social responsibility: a) Businesses should simply focus on making a profit. b) Involvement in social programs gives businesses too much power. c) There is a potential for conflict of interest.

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Management 12e by Ricky W. Griffin d)

Organizations lack the expertise to understand how to assess and make decisions about worthy social programs.

Discussion Starter: Ask students to help identify examples of how socially responsible behavior may have negative effects.

Discussion Starter: Ask students for their thoughts and opinions regarding the relative merits of the arguments for and against social responsibility. This can also be set up as a debate exercise with different teams arguing for and against social responsibility.

C.

Organizational Approaches to Social Responsibility Firms can adopt a number of different stances regarding social responsibility.

1.

2.

3.

4.

Obstructionist stance—describes firms who do as little as possible in the social responsibility arena. If cited for unethical behavior, they deny it, cover it up, or try to hide it.

Defensive stance—describes firms who do only what is legally required and nothing more.

Accommodative stance—describes firms who not only do what is required by law, but on selected issues will do more.

Proactive stance—describes firms who do far more than is legally required in all situations. They view themselves as a citizen in the society.

Teaching Tip: Be sure to stress that these four approaches represent points along a continuum, as shown in Figure 4.5. Thus, there are often fine gradations between different approaches to social responsibility.

Discussion Starter: Ask students to help identify other examples to illustrate each of the four approaches to social responsibility.

Teaching Tip: Note the relationship between the four approaches to social responsibility and the arguments for and against social responsibility. For example, a firm whose managers strongly oppose social responsibility will be more likely to take an obstructionist or a defensive approach, whereas a firm whose managers endorse social responsibility will be more likely to take an accommodative or a proactive approach.

Teaching Tip: Stress the point that an organization‘s approach to social responsibility may be inconsistent and/or contradictory.

IV. THE GOVERNMENT AND SOCIAL RESPONSIBILITY A.

How Government Influences Organizations 1. Direct regulation—the establishment of laws and rules that dictate what businesses can and cannot do in prescribed areas Teaching Tip: Describe how your local community regulates business through its zoning procedures. If relevant, describe a recent controversial zoning decision.

2.

Indirect regulation—finding ways to influence firms to act in a socially responsible way without direct laws One way is to change the tax structure of organizations to make business act in a way that the government thinks is socially acceptable.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment B.

How Organizations Influence Government 1. Personal contacts—relationships between business leaders and political leaders can be used by businesses to present their cases or positions.

2. Lobbying—the use of a formal representative, by either a single organization or a group of organizations, before political bodies on behalf of the organization or organizations.

Extra Example: Organizations that rely heavily on lobbying differ widely on issues and political stances. For example, one website listed these organizations as the most powerful lobbying groups in Washington (in descending order): the American Association of Retired Persons, the National Federation of Independent Business (smallbusiness owners), the American Israel Public Affair Committee, the NRA, and AFL-CIO. 3.

Political action committees (PACs) —special organizations created to solicit money and then distribute it to political candidates.

Extra Example: In the 2012 presidential election year, prominent PACs included the American Federation of Teachers, a labor union, and the American Medical Association.

4.

Favors—Organizations sometimes rely on favors and other influence tactics to gain support. The favors vary widely, such as offering free airline travel on corporate jets.

Interesting Quote: ―You just tend to listen more carefully to people who are helping you stay in office than to people who are not or are trying to harm you.‖ Representative Rick Lazio, a Republican from New York, quoted in Speaking Freely, 2nd Ed., by Larry Makinson (Center for Responsive Politics, 2003).

V.

MANAGING SOCIAL RESPONSIBILITY A.

Formal Organizational Dimensions 1. Legal compliance—the extent to which the organization complies with local, state, federal, and international laws 2. Ethical compliance—the extent to which the firm and its members follow basic ethical standards of behavior 3. Philanthropic giving—the awarding of funds or other gifts to charities or other social programs Global Connection: As noted, international businesses have become frequent contributors in different countries where they do business. For example, UPS supports national Olympic teams in dozens of different countries.

B.

Informal Organizational Dimensions 1. Organization leadership and culture—The basic culture and leadership practices of an organization can define the social responsibility stance adopted by an organization and its members.

Extra Example: Dave Thomas, former CEO of Wendy‘s, gave millions of dollars to help needy children. He also donated large amounts of his time to help them learn to read and to provide adoption assistance.

2.

Whistle blowing—occurs when an employee discloses illegal or unethical conduct by others within the organization.

Discussion Starter: Several recent corporate scandals, including Enron‘s, have been disclosed by whistle blowers. Ask students whether they agree that women tend to be more ethical than men. xlvi

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Management 12e by Ricky W. Griffin

Discussion Starter: Solicit student opinions regarding whistle-blowing. In particular, ask how many of them would ―blow the whistle‖ themselves if it meant the loss of a job.

Extra Example: A popular 1999 movie entitled The Insider (starring Russell Crowe and Al Pacino) tells of a research scientist employed by a tobacco firm who loses his job and is threatened for telling the truth about the health dangers of smoking. The movie was based on the true story of whistle blower Jeffrey Wigand, who was fired from cigarette maker Brown & Williamson in 1993.

C.

Evaluating Social Responsibility To evaluate a firm‘s social performance, an organization can conduct a corporate social audit. This is a formal and thorough analysis of the effectiveness of the firm‘s social performance.

END OF CHAPTER QUESTIONS Questions for Review 1.

Define ethical and unethical behavior. Give three specific examples of ethical behavior and three specific examples of unethical behavior.

Ethical behavior conforms to generally accepted social norms, while unethical behavior does not.

Ethical behavior would include actions such as accepting responsibility for mistakes, telling the truth, and putting the needs of others ahead of one‘s own needs. Unethical behavior includes stealing, lying, and winning by cheating. Point out to students, however, that ethics are dependent, by definition, on society‘s norms. Ethics are also relative for most individuals. For example, lying may be justified if the lie is a ―white lie‖ told to spare a friend‘s feelings.

2.

Summarize the basic stances that an organization can take regarding social responsibility.

The four stances, in order of increasing positive social responsibility, are the obstructionist, the defensive, the accommodative, and the proactive.

3.

Who are the important stakeholders of your college or university? What does each stakeholder group get from the school? What does each give to the school?

Stakeholders at most universities would include students, students‘ families, professors, staff, unions that represent employees, the school‘s ruling body (a state, a church, etc.), regulatory agencies, creditors, and suppliers. For example, students contribute money; their effort, creativity and loyalty; and feedback to their school. In exchange, they expect items such as educational services, value for their money, a diploma, and help in finding employment.

4.

Describe the formal and informal dimensions of social responsibility.

Formal dimensions of social responsibility include legal compliance—adherence to laws; ethical compliance—adherence to ethical standards of behavior; and philanthropic giving—voluntary contributions to causes and organizations that benefit society. The informal dimensions are organization leadership and culture—a role model set at the highest levels of the organization, and whistle-blowing—public disclosure of an organization‘s unethical actions.

Questions for Analysis 5.

What is the relationship between the law and ethical behavior? Can illegal behavior possibly be ethical?

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Organizations can act legally but not ethically. Individuals can act in what they feel is an ethical manner while also breaking the law. Some individuals try to block abortion clinics in an effort to stop actions that they believe are harmful. In their eyes, these protests are ethical, but to the police, who may arrest them for trespassing, the protests are illegal.

6.

Where do organizational ethics come from? Describe the contributions made by the organization’s founder, managers, and workers as well as laws and social norms. Which do you think is most influential? Why? An organization‘s founder sets the tone for the organization‘s ethics, just as they establish the foundation of many other areas of culture. Managers, by their behavior, serve as role models for employees. Managers can also create policies or practices that impact ethics. Workers, by their compliance, either support or undermine the ethical or unethical actions of others. Students will have various opinions about the impact of each of these groups on ethics. A founder establishes the initial ethical position of the firm, which can endure for a long time. Managers are also influential, as policy makers and role models. Workers, because they are carrying out the activities of the organization, can have a very significant impact too.

7.

There are many worthy causes or programs that deserve support from socially responsible companies. In your opinion, which types of causes or programs are the most deserving?

Explain your reasoning.

Students will have a variety of responses. Some may prefer that companies spend money on causes that directly support the work or mission of the organization. The students might suggest welfare-towork or educational programs. Others may prefer causes that support the neediest, and they may suggest programs that target the homeless, children, or the terminally ill. Another viewpoint would suggest that organizations should support charities that provide maximum public relations exposure for the firm. These companies would contribute to charities supported by wealthy and prominent individuals or popular causes such as parks or free concerts. Yet another position is that companies should use their charitable contributions to ―undo‖ some of the negative outcomes of their business.

These companies might contribute to recycling, environmental clean-up, or anti-poverty programs in areas where they laid off employees.

Questions for Application 8.

In the last several years a number of corporate scandals have been brought to light. Many organizations have responded by, for example, appointing a chief ethics officer, beginning an ethics training program for workers, writing a formal code of ethics, or setting up a hotline for whistleblowers. In your opinion, are these measures likely to increase organizational ethics in the long run? If so, why? If not, what would be effective in improving organizational ethics?

Students will readily see the difference between ―talking the talk‖ and ―walking the walk.‖ These programs can be effective if they are part of an organization-wide commitment to real change. In isolation, or if not supported by top management, or if not consistently implemented, even the bestconceived change will not be effective in the long-run. Other ideas for improvements could range from firing employees who commit ethical violations to funding ethics education courses at the local university.

9.

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Review the arguments for and against social responsibility. On a scale of 1 to 10, rate the validity and importance of each point. Use these ratings to develop a position regarding how socially responsible an organization should be. Now compare your ratings and position with those of two of your classmates. Discuss your respective positions, focusing primarily on disagreements.

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Management 12e by Ricky W. Griffin Each of the arguments should be given a value from one to ten. Based on the ratings, students should be able to develop positions about how socially responsible firms should be. Because the ratings depend on each student‘s individual values and feelings, ratings should differ from student to student. The comparison portion of this question will provide an opportunity for these differences to surface. The results from the discussion of the disagreements can be shared with the class.

10.

Give three specific examples of a way in which the government has influenced an organization.

Then give three specific examples of a way in which an organization has influenced the government. Do you think the government’s actions were ethical? Were the company’s actions ethical? Why or why not?

A sample answer could be: ―OSHA regularly inspects the plants at Ford Motors to ensure worker safety. The IRS collects taxes from Ford Motors. The SEC ensures that shares of Ford Motors are sold in an ethical manner and that the company accurately reports its financial position to shareholders. Ford Motors lobbies the federal government for a reduction in pollution control requirements for automobiles. They contributed $4.5 million to lobbyist groups in 2014. (Source: http://www.opensecrets.org./) Ford cooperated in providing data to the National Highway Traffic Safety Administration as they investigated crashes related to the failure of Firestone tires installed on Ford SUVs.‖ Of course, students will have differing opinions about the ethics of each of these items.

END OF CHAPTER EXERCISES Building Effective Diagnostic and Decision-Making Skills I.

Purpose This exercise aids students in developing their diagnostic and decision-making skills in relation to an ethical business dilemma, focusing on the dilemmas posed by the online publication of music.

II.

Format This out-of-class exercise could be effective as an individual or as a small-group task, and it should require about 20 minutes to complete.

III. Follow-Up A. Start by considering each of the stakeholders in the online music publishing industry— recording artists, recording companies, online file-sharing companies such as Napster, and consumers. Consider the kinds of ethical problems faced by the industry, and explain how each stakeholder is affected by each problem.

Students will see that each of the stakeholders has a different viewpoint on the ethical problems in the music industry. Artists, for example, want to obtain fair royalties for their creative works, but they also want their music to have broad public exposure. Consumers, on the other hand, want convenient and inexpensive access to music, and they don‘t want to lose their ―right‖ to free exchange of files over the Internet.

B.

For each problem, determine the best outcome for each stakeholder.

The ―best‖ outcome depends on how the ethical problem is defined for each stakeholder.

C.

For each problem, do you see any way to satisfy the needs of every stakeholder? If yes, explain how this outcome can be brought about. If no, explain why no mutually beneficial solution is possible.

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment Although the needs of differing parties may seem to conflict, there may be an opportunity for satisfying most or all stakeholders. For example, recording companies want profit and consumers want low costs. Yet the recording companies can profit just as much by selling more of less costly items as they can by selling fewer, more expensive items.

D.

In what ways did your own code of ethics influence your various answers to question 2 and your reasoning in question 3?

Students should recognize that their personal ethics will always effect their approach to solving ethical dilemmas. In this exercise, students‘ opinions about free speech, free markets, open access to the Internet, and the value of non-tangible goods will all impact their recommended solutions.

Building Effective Interpersonal Skills I.

Purpose This exercise is designed to help students develop their interpersonal skills through the analysis of a realistic ethical dilemma.

II.

Format This exercise is designed so that it can be done individually or in small groups, either inside or outside of class. This exercise should take between 10 and 15 minutes to complete.

III. Follow-up A. Jot down some general notes for your conversation with the male employee.

Answers will vary, but students should consider pointing out to the man how his behavior affects others and to try to explain why offensive remarks cannot be tolerated. It may help to draw upon the ethical principle of fairness, to show that it is not acceptable to single out one group of people in an insulting way. In order to reduce tensions, it may also help to assure the man that this incident can be ―put behind them,‖ and that the company will forgive and forget if the incidents don‘t continue.

B.

Jot down some general notes for your conversation with the female employee.

Students will probably mention the need to reassure the woman that she did the right thing by reporting the problem and to assure her that the organization regrets the incident and will work to ensure it doesn‘t happen again.

C.

Make sure that you have a handle on the ethical issues in this situation. Precisely what are they?

On one side, the woman deserves a workplace that is free of harassment and insensitivity. This is an issue that draws together rights, justice, and caring. If the company ignores the harassing behavior, they may be legally liable if any lawsuits result, and that would not be optimal for the firm, which raises issues of utility. On the other side, in fairness (justice), the man deserves one more chance. Now that he has been warned of the serious consequences, if he again chooses the inappropriate behavior, the firm would finally have no choice but to terminate him.

D.

Consider the options of having the two employees work closely together or keeping them separated. Which will you choose? Why? Students will probably see both sides of this issue. In the short run, separation might reduce tension. However, in the long run, separation isn‘t an effective (or legal) solution for most companies. Continued separation may result in attitudes that are even more at odds. Optimally,

l

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Management 12e by Ricky W. Griffin the firm would like to educate all of its workers, both men and women, about inappropriate behavior and its consequences so that the problem is stopped.

SKILL-BUILDING PERSONAL ASSESSMENT I.

Purpose This exercise assists students in developing a self-awareness of how they view issue of corporate social responsibility. Are they obstructionist, defensive, accommodative, or proactive?

II.

Format This exercise may be completed in-class or outside of class and should require 5-10 minutes to complete. Students select three statements (from twelve) which best reflect their feelings and beliefs about corporate social responsibility.

III.

Follow-up Statements chosen by the students should fall into one of four groups, or corporate stances. Three of the twelve statements represent each stance. Students may not choose all three of the statements within one stance but should have at least two within a single category.

MANAGEMENT AT WORK All the News That’s Fit to Repeat This case examines inaccurate media coverage by the New York Post and online media after the Boston Marathon bombings in 2013. Inaccurate coverage extended from social media to legitimate news coverage. Reddit members named two inaccurate suspects by name and the Post ran a front-page picture of two men who were not suspects. Erroneous reporting is nothing new but the use of social media means the inaccurate news get around faster than possible at any time in the past.

1.

Case Question 1: Since 1897, the motto ―All the News That‘s Fit to Print‖ has appeared on the front page of the New York Times. It was coined by new owner-publisher Adolph Ochs to distinguish his newspaper from its more sensationalistic competitors. What makes news ―fit to print‖ in today‘s news media? In your opinion, is there any category of contemporary news reporting that tends to encourage unethical journalistic behavior? Give at least one example of a story that fits into your category.

The case mentions how someone asked the governor of Massachusetts to confirm a ―report‖ which was actually a Twitter posting from a radio host. With the rise of social media, anything posted may eventually become ‗news‘. If a posting goes ‗viral‘, news sources could pick it up as a story.

Students could provide various examples of unethical journalistic behavior targets. The most common seem to be celebrities and sports figures. One possible example is the ESPN reporter asking teammates of the first openly gay NFL player about the after-game showering arrangements.

ESPN later issued an apology.

2.

Case Question 2: According to writing specialist Roy Peter Clark, ―Immediacy is a value, and it‘s a positive value. And verification is a positive value. However, the two don‘t always go together.‖ Clark suggests an ethical conundrum – a problem that doesn‘t necessarily have a satisfactory solution. Explain Clark‘s conundrum in your own words. How, for example, do you interpret the phrase ―don‘t always go together‖? How might this conundrum lead to specifically ethical uncertainty on the part of the news reporter? Give at least one example of a newsworthy event in

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Chapter Error! Unknown document property name.: Responding to the Ethical and Social Environment which the conflict between immediacy and verification might lead to a legitimate ethical conundrum for a news reporter.

Student‘s opinions will vary but one possible opinion is it takes time to verify a story and the reporter may feel they will miss the opportunity of being ‗first‘ to deliver the news if they verify every fact. The reporter may suffer from ethical uncertainty over specific unverified details if they run the story early in order to be ‗first‘. A bomb treat could serve as an example of a legitimate ethical conundrum. If not taken seriously and the story proves accurate, many people could be hurt.

3.

Case Question 3: According to one critic, the New York Post‘s coverage of the Marathon bombing added to ―a long history of not exactly getting things right‖ and confirmed its reputation as ―a ‗printfirst-ask-questions-later‘ tabloid.‖ In what sense does this criticism suggest problems not only in ethics, but in social responsibility as well? Specifically, in which areas of social responsibility can the Post be criticized for failing in its obligations to constituents?

News reporting should report the news. News services‘ social responsibility to the general public is to get the facts correct before delivering false information. The general social welfare depends on accurate news coverage. When the Post ran a front-page story showing two innocent members of the crowd, they were advancing stereotypes and invading privacy. False reporting also harms the organization‘s stakeholders, more specifically stockholders if continued false reporting harms the organization‘s stock price.

4.

Case Question 4: The New York Post was not the only journalistic organization to be criticized for its coverage of the Marathon bombing. CNN‘s John King, for example, had repeatedly told viewers that a ―dark-skinned male‖ was being sought by authorities. A fellow journalist criticized King for his description: ―Just explain to me what news value exists in the adjective ‗darkskinned.‘ What exactly is newsworthy that is communicated in that phrase?‖ Does this criticism indicate any ethical lapse on King‘s part, or just poor journalistic judgment? Should King‘s description even be regarded as a matter of poor journalistic judgment? If you were King, how would you reply to this criticism?

Student‘s opinions will vary. This could be considered an ethical lapse if King has a history of using similar adjectives in his personal life. It could be that King was merely mimicking verbiage used in reports provided him by other sources. If that were the case, students may consider this poor journalistic judgment. Some students may not consider the comments as unethical or poor journalistic judgment. On King‘s part replying to the criticism could cause more damage than if he said nothing. King could offer a sincere apology if he wishes to fend off further negative criticism.

CHAPTER 5

Navigating the Global Environment CHAPTER SUMMARY This chapter focuses on international issues in management. After introducing students to the nature of international business, the chapter discusses the structure of the global economy. Various challenges regarding the economic, political/legal, and cultural environment of international business are described.

The chapter continues with a discussion of how firms compete in a global economy. Finally, the chapter concludes by characterizing the managerial functions of planning and decision making, organizing, leading, and controlling as management challenges in a global economy.

It is important to remember it is no longer feasible to segregate a discussion of ―international‖ management from a discussion of ―domestic‖ management as if they were unrelated activities. Though

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Chapter 6: Basic Elements of Planning and Decision Making this chapter highlights the central issues of international management, global issues, examples, opportunities, and challenges appear throughout the text.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market.

2.

Discuss the structure of the global economy and describe the GATT and the WTO.

3.

Identify and discuss the environmental challenges inherent in international management.

4.

Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.

MANAGEMENT IN ACTION Into Africa The opening case covers the rise of the middle class in Africa and the accompanying rise in the demand for American brand names. Harley Davidson is a popular brand. Harley began to target Africa‘s rising middle class in 1996 and began Africa Bike Week in South Africa, a Harley-sponsored annual event drawing 110,000 enthusiasts in 2014. The Elephant‘s Bikers club, based in the Ivory Coast, draws people from each small town they pass through. One club member says people respond positively to them because they are sharing a pleasure, a dream and people identify with that.

Management Update: According to a December 2014 report by The Freedonia Group, a market research group, world demand for motorcycles will rise 5.9 percent yearly to 132.4 million units in 2018, valued at $119.5 billion. The report also predicts that Ebikes and other electric motorcycles will capture market share from internal combustion engine models in most countries. Harley-Davidson has an electric motorcycle. The bike is not yet for sale but the company is touring the U.S, Canada, and Europe, letting riders try out the bike and provide feedback.

LECTURE OUTLINE I.

THE NATURE OF INTERNATIONAL BUSINESS International business is a pervasive process that touches virtually every sector of the economy and every business in the world.

People around the world use products on a daily basis that are imported from countries thousands of miles away.

Group Exercise: Have students generate a list of the ten products they use most frequently. Then have them research the national origin of the companies that make them.

Discussion Starter: Ask students to predict which products made in the United States are most likely and least likely to be successful abroad.

A.

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The Meaning of International Business There are four forms of international business.

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Management 12e by Ricky W. Griffin 1.

2.

3.

4.

A domestic business acquires essentially all of its resources and sells all of its products or services within a single country.

An international business is primarily based in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries.

A multinational business has a worldwide marketplace from which it can buy raw materials, borrow money, and manufacture products and to which it subsequently sells its products. Such companies are often called multinational corporations, or MNC‘s.

A global business transcends national boundaries and is not committed to a single home country.

Teaching Tip: Stress for students that these four categories of international business fall along a continuum.

B.

Trends in International Business After World War II, U.S. firms dominated the markets for automobiles, electronic equipment, machine tools, and most other industrial products.

Increased population spurred by the baby boom and increased affluence resulting from the postwar economic boom greatly raised the average person‘s standard of living and expectations. U.S. consumers wanted new and better products while U.S. companies failed to meet those expectations.

However, after war-torn Germany and Japan rebuilt their factories, they began to invade the U.S. markets. U.S. firms are now finding that to be competitive, they must think globally.

Extra Example: The text identifies countries and the number of Global 500 companies located within their borders. The text uses numbers from 2011. To show the difference, here are 2015 numbers: 128 of the world‘s largest 500 businesses were U.S. firms, 54 in Japan, 31 in France, 28 in Germany, and 98 in China. While the other countries have fewer corporations on the list, China has more than doubled its number. (Fortune‘s Global 500 List, available at www.fortune.com) Extra Example: Wal-Mart Stores was the world‘s biggest firm in 2015, with revenues in excess of $485 billion.

C.

Managing the Process of Globalization Firms that plan to increase their international business activity must plan their expansion into foreign markets very carefully. Several alternative approaches are possible.

1.

Importing and/or exporting is usually the first type of international business in which a firm gets involved.

Exporting involves making the product in the firm‘s domestic marketplace and selling it in another country.

Importing means that a good, service, or capital is brought into the home country from abroad.

Teaching Tip: Stress that the difference in exporting versus importing is point-of-view.

When Rolex markets its watches and ships them to U.S. jewelers, Rolex is exporting, but the stores who buy the watches for sale in the United States are importing them.

Teaching Tip: Although the U.S. steel industry has declined greatly since the 1970s, today it is experiencing a revival by importing raw steel from Brazil and other makers and transforming it into value-added customized products for American manufacturers.

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Chapter 6: Basic Elements of Planning and Decision Making 2.

3.

4.

Licensing is an arrangement whereby one company allows another to use its brand name, trademark, technology, patent, copyright, or other assets in exchange for a royalty based on sales.

Strategic alliances occur when two or more firms jointly cooperate for mutual gain. A joint venture is a special type of strategic alliance in which the partners share ownership in a new enterprise.

Direct investment occurs when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country.

Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border. These plants receive tax breaks from the Mexican government, and there is a large population of workers willing to work for low wages.

Global Connection: The passage of the North American Free Trade Agreement has increased the importance of maquiladoras to firms doing business in Mexico.

Teaching Tip: Stress the fact that large firms use multiple methods of international business. For example, Ford ships cars made in the United States to Canada (exporting), contracts with Mazda to manufacture part of the Ford Escort (licensing), jointly develops the Mercury Villager minivan with Nissan (strategic alliance), and owns several manufacturing plants in other countries (direct investment).

Teaching Tip: Use Table 5.1 to describe the advantages and disadvantages of the four different approaches to internationalization.

D.

Competing in a Global Market The functions performed by a firm are the same, whatever the level of international involvement. However, the complexity is greater for international firms.

The key question is whether to operate as one global, integrated firm, or to allow each regional branch to operate more independently with little regard for the overall organization. Most MNC‘s use both global and local activities as they search for the optimal answer.

II.

THE STRUCTURE OF THE GLOBAL ECONOMY A.

Mature Market Economies and Systems A market economy is based on the private ownership of business and allows market factors such as supply and demand to determine business strategy. The United States, Japan, and France, among others, have a market economy.

Market systems are clusters of countries that engage in high levels of trade with each other.

The North American Free Trade Agreement (NAFTA) is an agreement made by the U.S., Canada, and Mexico to promote trade with one another, is one example of a mature market.

The European Union (EU) is the first and most important international market system.

Group Exercise: Have students sketch a world map from memory with no aids. Have them mark approximate locations of each market system discussed in the text.

Discussion Starter: Ask students for their opinion of NAFTA. For example, ask whether they think it is generally a good or a bad thing for each of the three major partners.

Still another mature market system located in Southeast Asia is Pacific Asia (Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, and Australia).

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Management 12e by Ricky W. Griffin Discussion Starter: Ask students which countries in Europe and Asia they have visited.

Then ask how similar to or different from the United States each country was.

B.

High Potential/High Growth Economies High potential/high growth economies are found in countries whose economies are just now beginning to emerge as important business centers. They are generally characterized as recently having weak industry, weak currency, and relatively poor consumers, but they are currently experiencing strong development and growth. China and India fall into this category today. Additional developing countries include: Brazil, Vietnam, Russia, and South Africa.

Global Connection: Although China and India represent the world‘s two largest countries in terms of population, American firms experience a significant risk in moving into those markets based on political, economic, and cultural differences.

C.

Other Economies The Middle East defies classification as a market or developing economy due to their mixed models of resource allocation, property ownership, and development of an infrastructure.

These countries hold tremendous wealth but political instability and tremendous cultural differences combine to make doing business in many parts of the Middle East both very risky and very difficult.

Additionally, the countries that are involved in political or ethnic violence (including Peru, El Salvador, Turkey, Columbia, and Northern Ireland) are poor business risks.

Cuba presents special challenges due to their long insulation from the outside world. Now that the U.S. and Cuba have taken steps to normalize their relationship, Cuba may quickly become an important business center.

D.

The Role of the GATT and the WTO The General Agreement on Tariffs and Trade (GATT) is a trade agreement intended to promote international trade by reducing trade barriers and making it easier for all nations to compete in international markets. GATT arose after WW II in an effort to avoid trade wars that would benefit rich nations and harm poorer ones.

One key component of the GATT was the identification of the so-called most favored nation (MFN) principle. If a country extends preferential treatment to any nation that signed the agreement, they must offer the same treatment to any other nation who signed the agreement.

The World Trade Organization (WTO) currently includes 140 member nations and 32 observer countries and requires members to open their markets to international trade and follow WTO rules. Began in 1995, the WTO replaced the GATT and absorbed its mission.

The WTO has three basic goals: 1. To promote trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies.

2. To reduce remaining trade barriers through multilateral negotiations.

3. To establish impartial procedures for resolving trade disputes among its members.

III. ENVIRONMENTAL CHALLENGES OF INTERNATIONAL MANAGEMENT As illustrated in Figure 5.3, three environmental challenges in particular warrant additional exploration – the economic environment, the political/legal environment, and the cultural environment of international management.

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Chapter 6: Basic Elements of Planning and Decision Making A.

The Economic Environment – three aspects present particular challenges.

1. Economic system—Most countries are moving toward a market economy allowing firms and customers to decide what products and services to provide. This allows supply and demand to determine which firms and products will be available.

A related characteristic of market economies is the nature of property ownership. Most countries have a mix of publicly and privately owned businesses.

Cross-Reference: Point out that the principles of economics classes your students probably took as sophomores should have provided them with an in-depth understanding of the material introduced here.

2.

Natural resources—Countries vary in the degree to which they have natural resources available for production purposes or for selling. Japan, for example, has relatively no natural resources, while the United States has a great variety of natural resources.

Other issues include access to natural resources, especially oil, and the ways in which other countries use their natural resources. An example is South America clearing the rain forests to grow crops.

Extra Example: Oil has been the foundation of the economies of the Middle Eastern countries for decades. In the U.S., wood, minerals, and oil are key natural resources.

3.

Infrastructure—Countries also vary in the degree to which they have developed their infrastructures: the schools, hospitals, power plants, railroads, highways, ports, communication systems, airfields, and commercial distribution systems.

Extra Example: Alcoa had to build a school and a sewage treatment plant adjacent to a manufacturing plant it was constructing in Peru.

Extra Example: Following its victory in Baghdad, American and coalition forces teamed up with local citizens to begin the task of rebuilding Iraq‘s infrastructure.

B.

The Political/Legal Environment Four important aspects are government stability, incentives for multinational trade, controls on international trade, and the influence of economic communities on international trade.

1.

Government stability can be viewed in two ways: as the ability of a given government to stay in power against other opposing factions in the country or as the permanence of government policies toward business.

The more instability in the government, the riskier it is to do business with a country. In some very unstable economies, foreign businesses have been nationalized—taken over by the host country government.

Extra Example: The political turmoil in African countries such as Somalia and Angola provide vivid examples of the resultant uncertainties that can affect the business community. Similar problems, albeit to a lesser degree, characterized much of Eastern Europe during the fall of communism.

Extra Example: Although the government of Cuba has been relatively stable for years (under the regime of Fidel Castro first and now his brother, Raul), many observers believe that communism will eventually collapse in that country. Fidel Castro is getting on in years and there is no evidence of a strong second tier of leadership who will have

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Management 12e by Ricky W. Griffin the same impact as did Fidel Castro. Following a period of turmoil, Cuba is eventually expected to become an important market in the Caribbean.

2.

Incentives for international trade—Many countries offer incentives to foreign businesses to attract them to these countries. Such incentives can take a variety of forms. Some examples of these incentives include reduced interest rates on loans, construction subsidies, and tax breaks.

3.

Controls on international trade—A government can impose a variety of barriers to international trade to protect domestic businesses.

A tariff is a tax collected on goods shipped across national boundaries. Tariffs may be collected by the exporting country, countries through which goods pass, and the importing country. Import tariffs are the most common.

Under the Byrd Amendment, if U.S. companies can demonstrate a foreign company is dumping (selling for less than fair-market value) its products in the U.S. market, those products will receive a tariff.

Teaching Tip: The stiff trade barriers employed by Japan continue to be a point of contention between that country and the United States. U.S. firms argue that there are so many trade barriers in place in Japan, that it results in unfair competition for them.

Quotas are a limit on the number or value of goods that can be traded. The most common form of trade restriction.

Export restraint agreements are agreements that convince other governments to voluntarily limit the volume or value of goods exported to or imported from a particular country. They are, in effect, export quotas. ―Buy national‖ legislation gives preference to domestic producers through content or price restrictions. Several countries have this type of legislation.

4.

Economic communities are sets of countries that have agreed to significantly reduce or eliminate trade barriers among its member nations (a formalized market system).

The European Union (EU) is still the most important.

Passage of NAFTA may be the first step toward formation of a North American economic community.

The Latin American Integration Association (Bolivia, Brazil, Colombia, Chile, Argentina, and other South American countries), and the Caribbean Common Market (the Bahamas, Belize, Jamaica, Antigua, Barbados, and ten other countries) are examples.

Discussion Starter: Ask students why they think there is no Asian economic community with the strength and identity of the EU or NAFTA. C.

The Cultural Environment 1. Values, symbols, beliefs, and language—When the countries in which a firm is manufacturing or selling a product or service have different cultures, problems can arise.

For example, Barbie dolls (made by U.S.-based Mattel) are considered by many Muslim parents to be too sexual for young children, and so they are not popular products in Muslim countries.

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Chapter 6: Basic Elements of Planning and Decision Making Discussion Starter: Ask students to think of common business practices in the United States that might seem odd or unusual in a foreign country. If you have any international students in class, you might ask them about business practices in their home countries that would seem odd or unusual in the United States.

Extra Example: A current joint venture between IBM (a U.S. firm), Toshiba (a Japanese firm), and Siemens (a German firm) headquartered in New York has faced several problems stemming from cultural differences. For example, the Germans are unhappy that the offices do not have windows, while the Japanese are unhappy that the offices are too small for large groups to gather. Meanwhile, the U.S. managers are unhappy because they feel that the Germans and the Japanese speak their native languages too often rather than communicating with each other in English.

Language can also be a barrier in international management. Not only the words that are spoken, but the nonverbal aspects of language can pose a problem to managers in a foreign country.

2.

Individual behaviors across cultures Geert Hofstede, a Dutch researcher, identified five important dimensions of individual differences. Figure 5.4 illustrates the differences.

Social orientation—a person‘s beliefs about the relative importance of the individual versus groups to which the individual belongs. Two opposing beliefs are individualism (the person comes first) and collectivism (the group comes first).

Power orientation—a person‘s beliefs about the appropriateness of power and authority differences in hierarchies. Power respect recognizes authority, while power tolerance suggests less emphasis on authority.

Uncertainty orientation—feelings held by individuals about uncertain and ambiguous situations. People with uncertainty acceptance accept change and thrive on new opportunities. People with uncertainty avoidance dislike and avoid ambiguity.

Goal orientation—manner in which people are motivated to work toward goals. Those with aggressive goal behavior seek money, possessions, and assertiveness, while passive goal behavior tends to value quality of life, relationships, and concern for others.

Time orientation—extent to which individuals adopt a long-term versus a short-term outlook on work, life, and other elements of society. Some cultures have a longer-term orientation and recognize hard work eventually leads to goal achievement. Those with short-term orientation require more immediate rewards.

IV. COMPETING IN A GLOBAL ECONOMY A.

Globalization and Organization Size 1. Multinational corporations take a global perspective by transferring capital, technology, human resources, inventory, and information from one market to another.

Teaching Tip: Note the diverse set of countries represented in Table 5.2. This is a list of the world‘s 60 largest multinationals.

Teaching Tip: Have your students locate the most recent list of the Global 500 (Fortune publishes the list each year around midsummer, or it is available online at www.fortune.com.). Compare new lists with this table and note the changes.

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Management 12e by Ricky W. Griffin 2.

Medium-size organizations are still primarily domestic organizations that buy and sell products made abroad and compete with businesses from other countries in their own domestic market. They are increasingly expanding into foreign markets.

Extra Example: Many medium-size firms are finding it relatively easy—and quite profitable—to export to foreign markets.

3.

B.

Small organizations are benefiting from a global economy by being able to sell their products and services to a much larger organization without having to change many, if any, of their current work procedures.

Management Challenges in a Global Economy 1.

Planning and decision making in a global economy Managers need a broad understanding of the environment and competition in a global economy in order to plan effectively. The amount of information required to make sound business decisions also is greater in a global economy.

Cross-Reference: Note that the international implications for planning are integrated throughout Chapters 6–9.

2.

Organizing in a global economy The degree of control allowed the local managers in a global economy will influence the difficulty of organizing. If little control is provided to managers, they must frequently travel to or communicate with the corporation in order to determine what to do; managers with more control can simply organize the business in the way they think it should be done.

Cross-Reference: Note that the international implications for organizing are integrated throughout Chapters 10–13.

3.

Leading in a global economy In order to lead effectively, managers must understand how cultural factors affect individuals, how motivational processes vary across cultures, how the role of leadership changes in different cultures, how communication varies across cultures, and how interpersonal and group processes depend on cultural background.

Cross-Reference: Note that the international implications of leading are integrated throughout Chapters 14–18.

4.

Controlling in a global economy The basic control issues for international managers revolve around operations management, productivity, quality, technology, and information systems.

Cross-Reference: Note that the international implications of controlling are integrated throughout Chapters 19–20.

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the four basic levels of international business activity. Do you think any organization will achieve the fourth level? Why or why not?

There are four basic levels of international business activity: (1) domestic business—no international ties; buys and sells goods only in its own country; (2) international business—

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Chapter 6: Basic Elements of Planning and Decision Making primarily resides in one country but purchases components from abroad or sells a substantial amount of finished products to other countries; (3) multinational business—has a worldwide marketplace from which it buys raw materials, borrows money, manufactures its products, and to which it sells its products; (4) global business—transcends national boundaries and is not committed to a single home country.

A few large companies, for example Nokia, are moving towards a global business in which no single country dominates the firm. It seems clear that, as globalization continues, more and more companies will eventually achieve that level of activity.

2.

For each of the four globalization strategies, describe the risks associated with that strategy and the potential returns from that strategy.

Importing and exporting carries the risks of higher expenses and lack of customization, but it offers the lowest-cost way of entering a foreign market. Firms that use licensing run the risk of losing control of their product or of quality. However, licensing can be an effective way to enter a country that has lower technological development. Strategic alliances are risky because of the level of trust and the sharing of profits required between the partners. On the other hand, alliances help firms gain local expertise quickly and spread the risk of failure. Direct investment requires the greatest capital outlay and the greatest managerial expertise, but it can provide high profits.

3.

Describe the various types of political controls on international trade. Be sure to highlight the differences between the types.

Tariffs exist when goods that cross national borders are taxed. The effect of tariffs is to protect domestic firms and raise prices for exported or imported goods. A quota limits the amount of goods that can be traded between nations, and quotas serve to protect domestic firms and limit the profits of international competitors. Export restraint agreements are a type of quota that is voluntary, and they have the same effects as quotas do. ―Buy national‖ legislation gives preference to domestic producers, but it often affects only a very limited number of products.

4.

Explain the relationship between organizational size and globalization. Are large firms the only ones that are global?

Very large companies are often global firms because they saturated their domestic markets and had to seek additional consumers overseas. Medium-size and small organizations may have less global involvement, both because they still have domestic expansion opportunities and because they may have more limited resources for foreign investment. However, mid-size and small firms can use strategies such as exporting, licensing, franchising, or alliances in order to extend their resources.

Also, the rise of e-commerce has reduced the cost of international trade for firms of all sizes, creating international opportunities for smaller firms.

Questions for Analysis 5.

What are the advantages and disadvantages for a U.S.-based multinational firm entering a mature market economy? What are the advantages and disadvantages for such a firm entering a high-potential or high-growth economy?

A U.S. firm would have experience and expertise in competing in a mature market economy, which is similar to the American economy. However, a mature economy typically contains a number of entrenched domestic competitors that would challenge a new entrant into their market. On the other hand, a high potential/high growth economy would have less competition, but it would require the U.S. firm to adapt its products and processes to meet local requirements. In addition, government intervention may be higher in these economies and consumer buying power may be lower.

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Management 12e by Ricky W. Griffin 6.

Choose an industry. Describe the impact that international business has had on firms in that industry. Are there any industries that might not be affected by the trend toward international business? If so, what are they? If not, why are there none?

Students‘ answers will vary, but here is one example: ―In the pharmaceutical industry, a few very large multinational firms dominate globally. These firms are primarily headquartered in the U.S. and in Europe. Their workforce comes from the best scientists around the world. They sell products to every country, but they have higher sales and higher profits in mature markets. Developing countries have needs for different types of drugs and have the greatest potential for sales, yet the local consumer buying power and regulation limit growth at this time.‖ Students should see that almost every industry has been affected by globalization. Exceptions might be purely local industries, such as dry cleaning services or residential construction.

7.

You are the CEO of an up-and-coming toy company and have plans to go international soon.

What steps would you take to carry out that strategy? What areas would you stress in your decision-making process? How would you organize your company?

While student responses will vary, a typical answer follows. The steps to be undertaken include assessment of potential expansion target countries and assessment of the firm's products and capabilities as they will be deployed overseas. Three basic areas need to be considered in decision making: (1) market factors (including the ability to meet customer needs, the ability to distribute the product, and the market maturity); (2) technological factors (including the extent and cost of required redesign); and (3) personal values. Each set of factors will influence strategy, decision making, and organization. The most important issue in organizational design will relate to the amount of autonomy to give to each region or country.

Questions for Application 8.

Use the Internet to locate information about a company that is using a global strategic alliance or global joint venture. (Hint: Almost any large multinational firm will be involved in these ventures, and you can find information at corporate home pages.) What do you think are the major goals for the venture? Do you expect that the firm will accomplish its goals? If so, why?

If not, what stands in its way?

Students should not have trouble finding an example. Of course, answers will depend on the company that is chosen. Goals might include quick access to local expertise, a locally-known brand name, a way to get around limits on foreign direct investment, and sharing of financial risk. Firms that are likely to accomplish their goals chose their partners wisely, adopted a strategy that encourages trust and cooperation between the partners, assigned managers that were skilled in joint venture implementation, and made realistic assumptions about success.

9.

Assume that you are the CEO of Walmart. What are the basic environmental challenges you face as your company continues its globalization efforts? Give some specific examples that relate to Walmart.

A look at Wal-Mart‘s web page (www.walmart.com) indicates the extent of the company‘s global operations. As it expands internationally, it faces numerous environmental challenges in each of the countries it operates. Students will find out, for example, the problems Wal-Mart faces as it enters India through an alliance with a local player. Local laws as it pertains to foreign ownership are distinct in India as also the market challenges.

10. Review the following chart of Hofstede’s cultural dimensions. Based on the chart, tell which country you would most like to work in and why. Tell which country you would like least to work in and why.

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Chapter 6: Basic Elements of Planning and Decision Making Power Distance Range: 11–104

Individualism Range: 6–91

Uncertainty Avoidance Range: 8–112

Aggressiveness Range: 5-95

Germany

35

67

65

66

India

77

48

40

56

Israel

13

54

81

47

U.K.

35

89

35

66

U.S.A.

40

91

46

62

Adapted from: Geert Hofstede, Cultures and Organizations: Software of the Mind: Intercultural Cooperation and its Importance for Survival, London: HarperCollins, 1994, 26, 55, 84, 113.

Students‘ answers will vary, of course, depending on their individual preferences. In general, some may prefer a cultural environment that is very similar to that of the United States. These students may prefer the U.K., for example. On the other hand, some students will prefer a cultural environment that is quite different from the United States along one or more dimensions and may prefer Israel or India, for example. For some students, a single dimension may be most important, while for others, the combination of factors has the greatest impact.

END OF CHAPTER EXERCISES Building Effective Technical Skills I.

Purpose This exercise gives students a chance to learn more about foreign countries and their economies through Internet research. Students also are asked to think about the impact that a country‘s economy has on the involvement of multinational firms.

II.

Format This exercise must be done outside of class if there is not sufficient classroom Internet access. It can be effectively completed by an individual or a small group of students, and it should take about 20– 30 minutes to complete.

III. Follow-Up A. List the five countries in the world that projected to have the largest populations in 2050.

Explain how the list will have changed since 2009.

In 2009 China had 1.3 billion people, India had 1.157 billion, the U.S. had 307 million, Indonesia had 240 million, and Brazil had 199 million. In 2050, the U.S. Census Bureau estimates that India will 1.6 billion, China will have 1.4 billion, the U.S. will have 439 million, Indonesia will have 313 million, and Ethiopia will have 278 million.

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B.

List the five countries that export the most products to the U.S. In 2009, it was China, Canada, China, Japan, and Germany, respectively.

C.

List the five countries that currently import the most products from the U.S. In 2009, it was Canada, China, Mexico, Japan, and Germany, respectively.

D.

Life span is a measure of individual prosperity in a country. What is the average life span in each of the five largest countries in the world? In each of the five largest exporters to the United States? In each of the five largest importers from the United States?

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Management 12e by Ricky W. Griffin In 2009, the current figures were: Brazil–64 years; Canada–80 years; China–72 years, Germany–78 years; India–63 years; Indonesia–68 years; Japan–81 years; Mexico–72 years; Nigeria–51 years; and the U.K.–78 years. (The U.S. average life span is 77 years.)

E.

Gross domestic product (GDP) is a measure of a country‘s economic health. What is the GDP per capita, in U.S. dollars, of each of the five largest countries? Of each of the five largest exporters to the United States? Of each of the five largest importers from the United States?

In 2008, the current figures were: Brazil–$10,100; Canada–$39,300; China–$6,000; Germany– $34,800; India–$2,800; Indonesia–$3,900; Japan–$34,200; and Mexico–$14,200. (The U.S. GDP per Capita is $47,000.)

F.

What are the implications for your firm? What, for example, do the data suggest about the desirability of various countries as current trading partners? What do the data suggest about the desirability of the same countries as future trading partners?

Students will see that U.S. multinational firms need to have information about current standard of living, economy, and population for countries around the world, but even more importantly, they need to look at future estimates of each of these items. For example, developing countries such as China and India will be growing in population in the future and will assume added global importance as they do. Desirable trading partners today might include Japan, Germany, and Canada, but these countries are likely to lose importance as their population ceases to grow.

Building Effective Communication Skills I.

Purpose This exercise is designed to help students think through the logistical issues that international communication can raise.

II.

Format This communication skills exercise is best done alone. Questions 1 and 2 should take no longer than 10 minutes; question 3 can take as long as 30 minutes. Notice that if the exercise is done in class, it will be necessary to provide students with resource material.

III. Follow-Up There are no follow-up questions for this exercise. Students will have a variety of answers, depending upon their opinions and assumptions. Point out to students that even though communication technology has dramatically improved the ease of international communication, there are still some very real barriers to communicating internationally.

Other areas that might impact international communication include language barriers and the unequal distribution of communication equipment in different areas of the world. For example, managers at remote locations may not have 24-hour communication access if they don‘t have phone service at their residences.

Another concern will be the differing customs surrounding international communication. For example, managers in some parts of the world may not be willing to stay at work late for an important call, or they may have religious duties at certain times of the day or week that cannot be rescheduled, or they may not be willing to conduct business communication from their homes.

MANAGEMENT AT WORK Nano Technology and Other Innovations

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Chapter 6: Basic Elements of Planning and Decision Making The closing case discusses reverse innovation and disruptive technology. Reverse innovation is innovation that appears first in the developing world and then spreads to more developed markets. This is illustrated through examples of medical practices in India now exporting those processes to the U.S. Disruptive technology creates new markets and value networks by disrupting existing markets and networks. An example in the case study is India‘s Tata Motors which has disregarded all current practices of car assembly and builds the world‘s cheapest car at $2,500.

Discussion Starter: How do students react to the price discrepancies of a medical procedure costing $600 U.S. dollars in India but they can charge American patients $4,000 for the same procedure. Does this seem fair? Who is to blame for the difference?

1.

Case Question 1: Let‘s say that you‘re the CEO of a publicly owned company in the United States and you‘re interested in getting involved in the Indian Market. You‘ve found an innovative Indian company whose success stems from its willingness to prioritize longer-term innovation goals over shorter-term financial goals. The company would make a good partner on some level, and you need to decide which sort of globalization strategy would work best for you: exporting, joint venture (or some other form of strategic alliance), or direct investment. Generally speaking, what are the pros and cons of each option?

Exporting is the easiest option as it holds little risk, the company can sell the products without modification and export with a relatively small outlay of capital. However, exports are taxed, subject to tariffs, and have higher transportation expenses. If products are not adapted to the local culture, they may not appeal to customers, and some products may be restricted. Strategic alliances allow quick entry into a foreign market and are an effective way to gain access to technology or raw materials. They allow the firms to share the risk and costs. That sharing may also be a disadvantage as it limits the control and return each company receives. Other issues involve government stability in the region and the blending of two corporate cultures. A joint venture would create a new enterprise and would lock the company into a long-term commitment. Managerial control is more complete in a direct investment and profits are not shared as in a joint venture. Purchasing an existing facility allows companies to take advantage of cheaper labor costs without having the costs of building a facility.

The additional complexity in decision making, the economic and political risks, and other challenges may outweigh the advantages of direct investment.

2.

Case Question 2: Here are a few facts about work and management in India, each of which naturally reflects elements of the country‘s cultural environment – attitudes, values, beliefs, and so forth:     

Each employee has a well-defined role to play in the organization.

Failure may cause an Indian employee to suffer long-term loss of confidence.

Indian employees are quite careful about such time guidelines as schedules and deadlines.

Indian employees are highly relationship and group oriented.

Honor and reputation are very important to Indian employees.

Where do you see noteworthy differences between attitudes, values, and beliefs in the Indian workplace and those in the ―typical‖ U.S. workplace? If you were an American manager who‘s been posted to an office in India, what changes would you probably have to make in your approach to management? How about you personally? Do you think that you‘d have more or less difficulty in making the transition than the ―typical‖ American manager?

Noteworthy differences between cultures: U.S. employees sometimes play many roles within an organization, not one clear, well-defined role. Some corporations even reward this behavior. Failure may affect those in the Indian culture adversely but Americans have the attitude of ‗try, try again‘.

Failure is not welcomed but is expected at some point in a career. Those in the Indian culture adhere to guidelines and deadlines while in the U.S. these are viewed more as ‗frameworks‘ to work off of, not xvi

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Management 12e by Ricky W. Griffin set in stone. This could pose a problem. While some company cultures stress team work, the typical American worker is focused on their own career and furthering that career, a vast difference from the Indian culture. Honor and reputation are held as values in both cultures. An American manager relocated to India may have to change their style to more of a coaching style to accommodate the culture differences. Students‘ answers will vary greatly on the last two questions due to their personal nature.

3.

Case Question 3: Rishikesha Krishnan says that innovation in India can grow only if Indian business develops ―a complete and reinforcing innovation ecosystem.‖ Among other things, such an ―ecosystem‖ requires companies to adopt ―well-developed and well-executed innovation strategies‖ and to be prepared to ―ride one technology wave after another.‖ Can you think of any U.S. industry in which companies have developed an ―innovation ecosystem‖ like the one recommended by Krishnan? Explain how Krishnan‘s criteria can be used to describe business practices in this industry.

Students may offer various examples. One possible example could be the cell phone industry.

Companies in this industry introduce ‗the next big thing‘ on a regular basis and seem to ‗ride one technology wave after another‘. These companies have created an ―innovation ecosystem‖ by focusing on customer needs and desires. They appear to have ‗well-developed and well-executed innovation strategies‘ in place but may meet obstructions when it comes to reliable phone service. The companies providing cellular service seem to lag behind the cellular phone industry.

4.

Case Question 4: Where does the precept ―value for the money‖ fit into your business philosophy? How about the precept ―value for the many‖?

Students‘ interpretations will vary greatly.

CHAPTER 6

Basic Elements of Planning and Decision Making Part Three of this book is entitled PLANNING AND DECISION MAKING. Its fundamental purpose is to discuss the first basic management function—planning and decision making.

Part Three has four chapters. Chapter 6 introduces the basic elements of planning and decision making.

Chapter 7 focuses on strategy and strategic planning. Chapter 8 addresses the management of decision making. Entrepreneurship is the focus of Chapter 9.

Teaching Tip: Some instructors prefer to cover Chapter 9 separately at the end of the course. If you prefer this method, Chapter 9 is written to be covered ―out of sequence.‖

CHAPTER SUMMARY Chapter 6 is the first of four devoted to the planning process. Its purpose, therefore, is to introduce the basic elements of this management function and to build a foundation for the more detailed coverage of the material that follows in the remaining chapters of the part.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Summarize the essential functions of decision making and the planning process.

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Chapter 6: Basic Elements of Planning and Decision Making 2.

Discuss the purpose of organizational goals, identify different kinds of goals, discuss who sets goals, and describe how to manage multiple goals.

3.

Identify different kinds of organizational plans, note the time frames for planning, discuss who plans, and describe contingency planning.

4.

Discuss how tactical plans are developed and executed.

5.

Describe the basic types of operational plans used by organizations.

6.

Identify the major barriers to goal setting and planning, how organizations overcome those barriers, and how to use goals to implement plans.

MANAGEMENT IN ACTION Cruise Control The opening case discusses Carnival Cruise Lines‘ dismal crisis management. Three separate accidents show the regression of Carnival‘s crisis management from merely adequate to its current state of contradicting media and customer reports and finger pointing. Crisis management experts say companies must execute their crisis management plan fast and effectively. Carnival does neither and continues to flub up with each new accident.

Management Update: Micky Arison was replaced as CEO by Arnold Donald in June 2013. Donald served on the company‘s board for 12 years. In July of 2015, Carnival Corporation announced they are building two ships for their Costa Cruises in Italy. Each ship can house 6,600 passengers and plans to operate starting in 2019. Currently, the largest Carnival ships carry 3,600 passengers.

LECTURE OUTLINE IV. DECISION MAKING AND THE PLANNING PROCESS Teaching Tip: Stress for students that the planning process portrayed in Figure 7.1 reflects an orderly and logical sequence of steps. In reality, of course, the actual planning process used in any given situation will likely reflect some variation in this process.

Decision making drives planning. Decisions underlie the establishment of organizational goals, for example, and the formulation and implementation of all plans.

In order to plan effectively, managers must understand the environmental context in which the organization exists. They must establish a mission that includes the organization‘s purpose, premises, values, and directions. Strategic goals and plans are devised from the mission statement; tactical goals and plans are generated from the strategic goals and plans; and operational goals and plans are devised from the tactical goals and plans.

Cross-Reference: Note for students that we are simply introducing decision making here. Chapter 8 covers decision making more thoroughly.

V.

ORGANIZATIONAL GOALS A.

Purposes of Goals Goals serve four important purposes.

1.

2.

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Goals provide guidance and a unified direction for people in the organization.

Goals promote good planning.

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Management 12e by Ricky W. Griffin 3.

4.

Goals motivate employees.

Goals provide an effective mechanism for evaluation and control.

Discussion Starter: Ask students to think about their own personal goals. Then ask them to evaluate each of those goals in terms of the purpose it serves.

B.

Kinds of Goals – goals vary by level, area, and time frame.

1. There are four basic levels of goals.

An organization‘s mission is a statement of its fundamental, unique purpose that sets it apart from other firms of the same type. The mission also identifies the scope of the business‘s operations in product and market terms.

Strategic goals are set by and for the top managers of the organization who focus on broad, general issues.

Tactical goals are set by and for middle managers and focus on how to operationalize actions necessary to achieve the strategic goals.

Operational goals are set by and for lower-level managers who focus on shorter-term issues associated with the tactical goals.

2.

3.

C.

Goals are set for different areas such as finance, marketing, or human resources.

Goals are set across different time frames (long-term, intermediate-term, and short-term).

The length of each time frame differs by level.

Responsibilities for Setting Goals All managers should be involved, but each manager generally is responsible for setting goals that correspond to his or her level in the organization.

Teaching Tip: Figure 6.2 illustrates the kinds of organizational goals that might be set for a regional fast-food restaurant chain.

Group Exercise: After discussing the material titled ―Kinds of Goals‖, have students construct a hypothetical hierarchy of goals like those in Figure 6.2 for different kinds of organizations such as a retailer, a manufacturer, a college or university, and so forth.

D.

Managing Multiple Goals Goals set by different areas or at different levels may conflict. Optimizing involves balancing and reconciling possible conflicts between goals.

Discussion Starter: Ask students to identify situations in which they have had to optimize multiple goals. A very relevant example for students is the trade-off between socializing and studying for a test or between studying for multiple tests during finals.

VI. ORGANIZATIONAL PLANNING A.

Kinds of Organizational Plans 1. Strategic plans—general plans that outline the decisions of resource allocation, priorities, and action steps necessary to reach strategic goals, which are set by the board of directors and top management and have an extended time frame.

Cross-Reference: Note that strategic plans are discussed in detail in Chapter 7.

2.

Tactical plans—developed to implement specific parts of a strategic plan. Typically, a tactical plan involves upper and middle managers and has a shorter time frame than the strategic plan.

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Chapter 6: Basic Elements of Planning and Decision Making 3.

B.

C.

Operational plans—focus on carrying out the tactical plans in order to achieve operational goals. Developed by middle and lower-level managers and have a short-term focus.

Time Frames for Planning 1. Long-range plans cover many years and vary in length from organization to organization. For our purposes, any plan that extends beyond five years is considered a long-range plan.

2. Intermediate plans cover periods from one to five years and parallel tactical plans.

3. Short-range plans—have a time frame of one year or less and affect a manager‘s day-today activities.

An action plan serves to operationalize any other kind of plan.

A reaction plan is a plan designed to allow the company to react to an unforeseen circumstance.

Responsibilities for Planning 1. Planning staff—The planning staff is a group of planning professionals who help reduce the planning workload of individual managers, help coordinate the planning activities of individual managers, and provide tools and techniques needed to solve problems. They take a broader view than individual managers and go beyond particular departments.

Management Update: Planning staffs were once very popular and used by virtually all large organizations. In recent years, however, many firms have cut back or eliminated their planning staffs. This was done to save money and with the idea that operating managers are really more qualified to develop plans. A few experts are still kept on staff, however, to provide support and technical advice.

Management Update: As a corollary to the point noted above, planning task forces have become more popular in recent years as firms have attempted to get their operating managers more involved in planning.

Extra Example: Tenneco is an example of a firm that has taken this approach. While Tenneco still has a planning staff, it is much smaller than it used to be. Its members usually provide support for planning task forces composed of operating managers.

2.

Planning task force—A planning task force is a group of line managers with a special interest in the area of planning who are grouped together to address a particular issue.

Members of the planning staff also may be included in the task force.

Management Update: As the role of planning task forces has increased, so too has the role of executive committees. These committees provide a natural analog to a planning task force. That is, the executive committee can represent senior management, and a planning task force can represent line management. The two groups can then work together to effectively develop plans.

3.

4.

5.

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Board of directors—The board of directors establishes the corporate mission and strategy.

Chief executive officer—The CEO plays a major role in the complete planning process and is responsible for implementing the strategy.

Executive committee—The executive committee provides input to the CEO on the proposals that affect their own units and reviews the various strategic plans that develop from this input.

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Management 12e by Ricky W. Griffin Extra Example: Again, this closely mirrors the approach used at Tenneco today. The firm‘s executive committee works with planning task forces, with the efforts of both supported and assisted by a small planning staff.

6.

D.

Line management—Line managers are individuals with formal authority and responsibility for the management of the organization. They provide valuable inside information as plans are formulated and implemented, and they execute the plans developed by top management.

Contingency Planning and Crisis Management Contingency planning is the determination of alternative courses of action to be taken if an intended plan of action is unexpectedly disrupted or rendered inappropriate.

Contingency planning usually involves various action points that are used to identify the need to implement alternative plans.

Extra Example: Starbucks recently developed a contingency plan. Recent frosts in Brazil drove up the price of coffee beans to the point that Starbucks increased its own prices by 10 percent. It then developed a contingency plan for dealing with future pricing alternatives. If the price of beans drops to previous levels, Starbucks will lower its own prices back to previous levels as well. If bean prices remain high, however, Starbucks will also keep its own prices high.

Discussion Starter: Ask students to recall examples of times when they have engaged in contingency planning.

A closely related concept is crisis management—the set of procedures the organization uses in the event of a disaster or other unexpected calamity.

VII. TACTICAL PLANNING Tactical plans are an organized sequence of steps designed to execute strategic plans.

A.

Developing Tactical Plans Tactical plans must address a number of tactical goals derived from a broader strategic goal, must deal with specific resource and time issues, and require the use of human resources.

B.

Executing Tactical Plans For proper execution of tactical plans, a manager must evaluate possible courses of action in light of the goal, make sure each decision maker has the information and resources necessary to get the job done, ensure vertical and horizontal communication to minimize conflicts and inconsistent activities, and monitor ongoing activities derived from the plans to make sure the desired end results are achieved.

VIII. OPERATIONAL PLANNING A.

Single-Use Plans A single-use plan is developed to carry out a course of action that is not likely to be repeated in the future.

1.

Program—a single-use plan for a large set of activities

Extra Example: In 2009, Disney acquired Marvel Comics. The process of integrating the two companies was a program.

2.

Project—similar to a program, but generally of less scope and complexity

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Chapter 6: Basic Elements of Planning and Decision Making B.

Standing Plans A standing plan is used for activities that recur regularly over a period of time.

1.

Policy—specify the organization‘s general response to a designated problem or situation.

Discussion Starter: Give students several examples of policies at your college or university, for example, the school‘s policy regarding scholastic honesty or sexual harassment. Ask the students to describe why that policy was developed. In the students‘ opinion, is the policy adequately addressing the problem?

2.

3.

Standing operating procedure (SOP)—outlines the steps to be followed in particular circumstances.

Rules and regulations—describe exactly how specific activities are to be carried out.

Interesting Quote: McDonald‘s is famed for its SOPs and rules and regulations. To see where this mentality comes from, consider this quote from Ray Kroc, founder of McDonald‘s: ―The French Fry has become almost sacrosanct for me. Its preparation is a ritual to be followed religiously.‖ (Fortune, July 3, 1989, 80.)

Discussion Starter: Ask students for examples of rules and regulations they have encountered that they did not understand.

Group Exercise: Form students into small groups of four or five members each. Have each group identify a rule or regulation. Then have them attempt to find out when and why that rule or regulation was adopted, and how many exceptions are made to it.

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Management 12e by Ricky W. Griffin IX. MANAGING GOAL-SETTING AND PLANNING PROCESSES A.

Barriers to Goal Setting and Planning Cross-Reference: Note that Table 6.2 summarizes the barriers to effective goal setting and planning and also lists the methods for overcoming those barriers.

1.

Goals may be inappropriate if they are unattainable, if achieving them will mean a setback in another area, and if they place too much emphasis on either quantitative or qualitative measures of success.

Extra Example: Athletic departments are sometimes guilty of having inappropriate goals. That is, they may put so much emphasis on winning that they break rules in order to gain a competitive advantage.

2.

Improper reward systems can act as a barrier to goal setting and planning.

Extra Example: Following from the boxed insert above, reward systems may also encourage this behavior in athletic departments. That is, coaches may be rewarded only for winning even though they may make other contributions and may be doing other parts of their jobs well. Similarly, coaches have been fired for not winning, even though they are performing the rest of their job effectively.

3.

4.

5.

How quickly the organization‘s environment changes (how dynamic and complex the environment is) can be a barrier to effective goal setting.

Some managers are reluctant to establish goals for themselves and their units and act as a barrier to effective planning.

People resist change, and because they do, they may become a barrier to goal setting and planning.

Cross-Reference: Note that resistance to change is discussed more fully in Chapter 12.

6.

Constraints or limits on what an organization can do or is allowed to do can act as a barrier to goal setting and planning.

B.

Overcoming the Barriers 1. Managers must recognize the purpose and limits of goal setting and planning.

2. People responsible for achieving the goals and implementing the plans should be involved in the process from the beginning. Further, it is important to communicate to everyone involved in the process the overriding organizational and functional strategies and how they will be integrated.

3. Goals should be consistent horizontally, across the organization, and vertically, up and down the organization. Goals and plans need to be revised and updated regularly.

4. People should be rewarded for establishing effective goals and plans and for successfully achieving them.

C.

Using Goals to Implement Plans Formal goal setting, sometimes called management by objectives or MBO, is a widely used method for managing the goal-setting and planning processes concurrently to make sure that both are done effectively.

1.

The purpose of formal goal setting is to give subordinates a voice in the goal-setting and planning processes and to clarify for them exactly what they are expected to accomplish in a given time span.

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Chapter 6: Basic Elements of Planning and Decision Making Discussion Starter: Have students ever worked under a formal goal-setting system?

Extra Example: Managers at Cypress Semiconductor use a comprehensive form of MBO to guide virtually all performance. Each employee has dozens of goals, all of which are stored and continually updated in a central computer network.

2.

3.

The process of formal goal setting must start at the top. Top managers must communicate why they adopted the process, what it will accomplish, and that they are committed to it.

Employees must be educated about formal goal setting and it must be implemented in a consistent manner. The process begins with collaborative goal setting between a manager and a subordinate as the goals are clarified and written down. The resources needed to achieve the goals are discussed and periodic reviews are held to ensure the subordinate is on track in achieving the goals.

Formal goal setting can be effective in improving employee motivation, enhancing communication, and making performance appraisals more objective. The process can be ineffective if top management does not support it, if lower-level managers and employees do not accept the goals of the organization, or if there is an overemphasis on quantitative goals and plans.

Group Exercise: Have students develop a formal goal-setting system that could be used in teaching a class such as this one.

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the nature of organizational goals. Be certain to include both the purposes and the kinds of goals.

The four purposes of goals are to: (1) provide guidance and direction, (2) facilitate planning, (3) serve as a source of motivation and inspiration, and (4) be used to evaluate and control.

Businesses that move aimlessly cannot survive in today‘s economy. Goal development is essential because it helps guide the planning process. When employees know and understand the direction of the business, they are more motivated to accomplish the goals of the organization. Finally, the goals can be monitored as a control device. There are several kinds of goals: organizational goals, goals for different areas of the organization, and goals that span different time frames.

2.

Describe the scope, responsible personnel, and time frames for each kind of organizational plan. How are plans of different kinds related?

Strategic plans are long-range and broad plans that will impact the entire organization. They are typically made by the board of directors and top managers. Tactical plans are mid-range plans with somewhat less impact than strategic plans and are often made by upper and middle managers.

Operations plans are short-range and limited in scope and are made by middle and lower-level managers.

3.

Explain the various types of operational plans. Give a real or hypothetical business example for each type. Do not use examples from the text.

A program is a single-use plan that directs a large set of activities, such as Wal-Mart‘s acquisition and integration of the British grocer, ASDA. A project is a single-use plan that is more limited in scope than a program, such as GM‘s project to update the design of its Saturn automobiles. A policy is a standing plan that is stated very generally. Most universities, for example, have a policy forbidding discrimination or harassment. A standard operating procedure is a standing plan that

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Management 12e by Ricky W. Griffin describes the tasks that must be done under certain circumstances. The U.S. Navy uses SOPs to tell its sailors how to maintain equipment, for example. Rules and regulations are the narrowest type of standing plans and can substitute for decision-making. Many airlines have a rule, for example, that a flight attendant must smile at each passenger who addresses him or her.

4.

List the steps in the formal goal-setting process. What are some of the advantages for companies that use this approach? What are some of the problems that may arise from use of this approach?

Formal goal setting can increase employee motivation towards the accomplishment of specific goals. It can also enhance communication and make decision making more objective. Formal goal setting facilitates control too. Problems of formal goal setting include poor implementation, lack of top management support, the burdensome paperwork that formal goal setting can encourage, and the rigidity that can result.

Questions for Analysis 5.

Managers are frequently criticized for focusing too much attention on the achievement of short-term goals. In your opinion, how much attention should be given to long-term versus short-term goals? In the event of a conflict, which should be given priority? Explain your answers.

Clearly, managers must continually balance short-term and long-term interests. Too much attention to one or the other can result in ineffectiveness. Students‘ opinions will, of course, vary.

6.

What types of plans and decisions most likely require board of director involvement, and why? What types of decisions and plans are not appropriate for board involvement, and why?

Board should oversee any important strategic decisions, and they should also carefully supervise financial and other types of reporting in order to assure ethical and legal behavior. They should make decisions related to the CEO‘s compensation and activities. In short, they should make any decisions that the owners of the firm (the stockholders) feel needs oversight. Boards should not become overly involved in every management decision, which would create difficulties for managers. Nor should they counter-act every move by the CEO, but they should work to support and help the CEO grow in his or her management ability.

7.

Standing plans help make an organization more effective. However, they may inhibit experimentation and organizational learning. Under what conditions, if any, should organizations ignore their own standing plans? In the area of planning, how can an organization balance the need for effectiveness against the need for creativity?

Standing plans should be abandoned if circumstances change radically, forcing the alteration. Firms that are more interested in innovation than in efficiency should minimize their use of standing plans.

Managers are constantly balancing the need for creativity with the need for efficiency. One approach that has met with success at many firms is the development of standing plans—but with a built-in trigger for re-examination of the plans if circumstances warrant.

Questions for Application 8.

Interview the head of the department in which your major exists. What kinds of goals exist for the department and for the members of the department? Share your findings with the rest of the class.

The students of many departments will find that there are generally goals in three areas: teaching, research, and service. Discuss the three areas with the students and try to discover why one is given more importance than the other two by a given department. It may be interesting to discuss the

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Chapter 6: Basic Elements of Planning and Decision Making inclusion of research because many students do not see the rationale for including or emphasizing research as a goal of an academic department.

9. Tell about a time when an organization was not able to fully achieve all of its goals simultaneously. Why did this occur? Is complete realization of all goals impossible for an organization? Why or why not?

Students‘ answers will vary, but here is one example: ―At my workplace, we seek to hire experienced personnel who will be able to offer great customer service, but our budget is limited, so instead we usually hire entry-level workers, whose customer-service skills are weaker.‖ Other reasons for the inability to achieve goals simultaneously might be related to a constraint in other resources, such as insufficient labor, raw materials, or time. In theory, organizations should be able to find creative ways to satisfy many or all goals simultaneously. In practice, organizations with complex sets of stakeholders must try to assure that each group has at least some of its needs met but is unlikely to be able to fully satisfy all groups.

10. From your library or the Internet, find information about a company’s mission statement and goals. List its mission and some of its strategic, tactical, and operational goals. Explain the relationship you see among the goals at different levels.

Answers will vary. For example, if students investigated the mission statement of the IRS, they would find: ―to provide America‘s taxpayers with top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.‖ Among their strategic initiatives are the ability for all taxpayers to file their returns electronically. A tactical plan that builds on that strategy is the development of relationships with third-party providers of tax services, such as H&R Block. An operational plan that builds on that tactic is the development of an IRS web site, which offers specific help and instructions online for every tax form, to aid online filers. In general, students should find that the mission, strategy, tactics, and operations build on plans at the previous level.

END OF CHAPTER EXERCISES Building Effective Decision-Making Skills I.

Purpose This exercise allows students to apply their decision-making skills to a specific business situation.

II.

Format This exercise calls for reading the case scenario and dividing the class into groups of three or four.

Each group will meet as a management team responsible for deciding the fate of the company‘s Smallville plant.

Teaching Tip: An optional approach would be to square off teams in a debate format with one team representing management and the other an affected stakeholder group.

III. Follow-Up A. Your instructor will divide the class into groups of three or four people each. Each group will meet as a management team responsible for deciding the fate of the Smallville plant.

B. The team may decide to close the plant or keep it open, but the goal of the decision-making process is twofold: (1) to keep the company viable and (2) to reflect the team‘s individual and group values.

C. If the team decides to close the plant, it must draw up a list of the factors on which it based its decision and be prepared to justify it.

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Management 12e by Ricky W. Griffin D.

E.

If the team decides to keep the plant open, it must draw up a plan explaining how the company can still remain competitive.

The team has to keep cost as well as quality issues in mind. The Italian competitors are currently beating them on both fronts.

Each member of each team should be prepared to explain the choices that he or she made in helping the group reach its decision.

Building Effective Time Management Skills I.

Purpose This exercise should aid students in learning about the complexity of priority setting within an organization.

II.

Format This time-management skills exercise includes both individual and group components, and should take about 15 minutes.

III. Follow-Up A. Develop a schedule listing the sequence in which you need to meet with the eight parties that you‘ve listed above. Do the best that you can to minimize backtracking (seeing one party and then having to see him or her again after seeing someone else).

B.

Compare your schedule with that of a classmate and discuss the differences.

Students‘ answers will vary for the above questions.

C.

Do you find that it‘s possible to draw up different schedules which are nevertheless equally valid? If so, why? If not, why not?

Yes, students will be able to develop different schedules that meet the requirements. Some of the steps are relatively independent of the others. For example, advertising design can begin without interacting with the others. Therefore, students are free to place this task wherever they feel it is most appropriate. Other tasks are interconnected. For example, the physical layout of the store cannot be planned until a space has been leased.

MANAGEMENT AT WORK The Ingredients of a Sustainability Plan Mondelēz International is a snack food leader who promotes sustainability throughout its supply chain.

The case outlines sustainability efforts within Mondelēz‘s cocoa, coffee, and palm oil divisions. The case discusses all three types of organizational planning: strategic, tactical, and operational.

Management Update: In 2012 Kraft Foods Inc. split into two companies. One company specialized in snack foods (Kraft Foods Inc., renamed Mondelēz International) and the other company (Kraft Foods Group) specialized in grocery items.

In July 2015, Kraft Food Groups merged with H.J. Heinz to form Kraft Heinz. In August 2015, activist investor Bill Ackman announced he had built a 7.5 percent stake in Mondelēz International, believing the company can cut costs, grow revenues, and place itself in a position for eventual sale to a competitor. The announcement raises speculation if Ackman plans to re-merge Mondelez into the new Kraft Heinz company.

1.

Case Question 1: Here are a series of Mondelēz‘s publicly announced objectives for enhancing sustainability:   

Reducing production waste to landfill sites by 60 percent.

Reducing our energy and GHS in manufacturing.

Educating employees to reuse water and improve processes.

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Chapter 6: Basic Elements of Planning and Decision Making     

Reducing the impact of our operations.

Addressing child labor in the cocoa supply chain.

Reducing packaging material.

Eliminating 50 million pounds of packaging material.

Buying certified commodities.

Which of these are BEST considered strategic plans? Tactical plans? Operational plans? Which ones might qualify as programs? Projects? Policies? Be sure to explain your reasoning for each item. 

Reducing production waste to landfill sites by 60 percent. o



Students may consider this a tactical plan as there is a specific and concrete focus here of reducing landfill waste by 60 percent.

Reducing our energy and GHS in manufacturing. o This could be considered a strategic plan as it is broad in scope yet outlines the priorities.



Educating employees to reuse water and improve processes. o Students may consider this an operational plan as the scope is narrow and deals with few activities. This may be interpreted as a program or a project depending on the complexity and depth of the education process.



Reducing the impact of our operations. o This statement is broad enough to qualify for a strategic plan.



Addressing child labor in the cocoa supply chain. o This could also be interpreted as a strategic plan as it is a general statement but outlines the priority of child labor.



Reducing packaging material. o This is a general statement showing the priority of reduced packaging. Students may feel this is a strategic plan.



Eliminating 50 million pounds of packaging material. o This could be considered a tactical plan as the amount of material is stated.



Buying certified commodities. o This specific act points to an operational plan. This could also be considered a policy as it furthers the organizations move toward a sustainable supply chain.

2.

Case Question 2: ―Our business success,‖ says Mondelēz chairman and CEO Irene Rosenfeld, ―is directly linked to enhancing the well-being of the people who make and enjoy our products and to supporting the communities where we grow our ingredients.‖ Assume that you‘re a Mondelēz representative who‘s been asked to give a presentation to students in an introductory management class. Explain Rosenfeld‘s reasoning or her ―philosophy‖ of ―business success.‖ Be sure to give some examples of how and why this approach works at Mondelēz (which, remember, is a global snack food company).

The success of the company relies on customers purchasing snack products. Customers are increasingly opting for healthy snacks. By taking a holistic approach of minding the well-being of employees, customers, and suppliers, the company is promoting itself as a company that cares.

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Management 12e by Ricky W. Griffin Having a global presence, the company can ill-afford a customer base on any continent who feels the company is producing harmful products. For instance, paying special attention to the growing of products in the supply chain satisfies both the people who live in the growing area as well as customers purchasing the products anywhere in the world market.

3.

Case Question 3: Explain – hypothetically – how the following might emerge as barriers to sustainability planning at Mondelēz:     

Inappropriate goals.

An improper reward system.

A dynamic and complex environment.

Resistance to change.

Constraints.

Inappropriate goals may hinder sustainability planning if the goals are unattainable or if they place too much emphasis on the wrong measure of success. A goal of producing an unsustainable amount of coffee per acre will hinder sustainability planning.

An improper reward system may encourage suppliers to overestimate their sustainable production.

Many of Mondelēz‘s suppliers are countries with unstable governments. If governments change leaders, the company may face strict controls or a weakened workforce.

Resistance to change may hinder the company if suppliers do not wish to adopt the sustainable measures the company encourages.

Constraints may come in the form of import restrictions from supplier countries.

4.

Case Question 4: According to a 2014 McKinsey & Co. survey of executives, 36 percent included reputation management – building, maintaining, or improving corporate reputation – among the top three reasons for addressing sustainability.* Explain how the following management strategies can help to enhance both sustainability and reputation:    

Setting aggressive internal goals for sustainability initiatives.

Adopting a unified sustainability strategy with clearly articulated priorities.

Building a broad leadership coalition in shaping sustainability strategy.

Ensuring that everyone in the organization understands the financial benefits of sustainability.



Setting aggressive internal goals for sustainability initiatives. o



Adopting a unified sustainability strategy with clearly articulated priorities. o



If the company is successful with their goals, they could be the world‘s leader at sustainable production. This could increase both their reputation and their sustainability efforts as their name will carry more credibility and weight.

A unified strategy with clearly articulated priorities means the company has a good chance of successfully fulfilling their goals. Success could build their reputation and their sustainability efforts.

Building a broad leadership coalition in shaping sustainability strategy. o

Broad leadership allows for increased sensitivity to a variety of issues. The more diverse the leadership, the better the company‘s reputation.

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Chapter 6: Basic Elements of Planning and Decision Making 

Ensuring that everyone in the organization understands the financial benefits of sustainability. o

Having all employees on the same page and buying into the sustainability initiatives increases the chance for success.

* Sheila Bonini and Anne-Titia Bové, ―Sustainability‘s Strategic Worth: McKinsey Global Survey Results,‖ McKinsey & Co., July 2014 www.mckinsey.com , on September 15, 2014.

CHAPTER 7

Managing Strategy and Strategic Planning CHAPTER SUMMARY The competitive environment of business is becoming increasingly complex. Devising successful strategies is a complex task affected by many factors. This chapter discusses how organizations manage strategy and strategic planning. Chapter 7 begins by examining the nature of strategic management including its components and alternatives. The authors then describe the kinds of analyses needed for firms to formulate their strategies. Next, the text examines how organizations first formulate and then implement business-level strategies, followed by a parallel discussion at the corporate strategy level. The chapter concludes with a discussion of international and global strategies.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Discuss the components of strategy, types of strategic alternatives, and the distinction between strategy formulation and strategy implementation.

2.

Describe how to use SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis in formulating strategy.

3.

Identify and describe various alternative approaches to business-level strategy formulation.

4.

Describe how business-level strategies are implemented.

5.

Identify and describe various alternative approaches to corporate-level strategy formulation.

6.

Describe how corporate-level strategies are implemented.

7.

Discuss international and global strategies.

MANAGEMENT IN ACTION Stay Hungry xxx

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The opening case discusses the very successful marketing campaign for The Hunger Games: Catching Fire, the second installment in the popular movie series. Led by Lionsgate marketing department, who used a social media strategist, they developed a multiplatform campaign designed to engage fans. The first mission of the campaign was connecting with fans through Facebook and Twitter. The campaign was a success and overlapped into the tactical plan of appealing first to core fans then broadening the reach to those not yet invested in the books or movies. Some facets of the campaign called for synergies between traditional and online media. When managers can develop and implement effective strategies integrating product rollouts and social media they can achieve considerable success.

Discussion Starter: The Hunger Games franchise consists of only three novels, adapted into four films. In February 2015, Lionsgate CEO Jon Feltheimer revealed they were ―actively looking at some development and thinking about prequel and sequel possibilities‖ for the Hunger Games franchise. Ask students if they feel this is a good idea. Would they go see a sequel?

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Management 12e by Ricky W. Griffin

LECTURE OUTLINE I.

THE NATURE OF STRATEGIC MANAGEMENT A strategy is a comprehensive plan for accomplishing an organization‘s goals.

Strategic management is a comprehensive and ongoing process aimed at formulating and implementing effective strategies. Strategic management is a way of approaching business opportunities and challenges.

Effective strategies are those that promote a superior alignment between the organization and its environment and the achievement of strategic goals.

A.

The Components of Strategy 1. A distinctive competence is something the organization does exceptionally well. It is an organizational strength possessed by only a small number of competing firms.

Management Update: For decades, Volvo has been associated with exceptionally safe cars. Other car makers seem unable or unwilling to compete with Volvo in those areas.

Teaching Tip: Emphasize for students that a distinctive competence always exists in a limited area and does not imply competencies in other areas. For example, Volvos are not known for their sporty performance or their trend-setting appearance. In another example, Wal-Mart has a distinctive competence in keeping prices low, but it is not especially good at offering high-quality products or exceptional service.

2.

The scope specifies the range of markets in which an organization will compete.

Global Connection: For an international business, the scope component of strategy specifies in which foreign markets the firm intends to compete.

3.

Resource deployment specifies how an organization will distribute its resources across the areas in which it competes.

Global Connection: For an international business, the resource deployment component of strategy determines the concentration of firm resources and efforts in various markets.

B.

Levels of Strategy 1. Business-level strategy consists of the set of strategic alternatives that an organization chooses as it conducts business in a particular industry or market.

2. Corporate-level strategy consists of the set of strategic alternatives from which an organization chooses as it manages its operations simultaneously across several industries and several markets.

Teaching Tip: Strongly distinguish between business- and corporate-level strategies.

Extra Example: A good example that helps distinguish between business- and corporate-level strategies is PepsiCo. Among other things, PepsiCo owns Pepsi soft drinks and Frito-Lay (Doritos, Ruffles, etc.). Determining which businesses PepsiCo will own is part of its corporate-level strategy; deciding how each separate business will compete is part of its business-level strategy.

Teaching Tip: An additional level of strategy is functional level. This refers to strategies developed for specific functional areas such as marketing, finance, and so forth.

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C.

Strategy Formulation and Implementation 1. Strategy formulation is the set of processes involved in creating or determining the strategies of the organization; it focuses on the content of strategies.

2. Strategy implementation is the methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.

3. Deliberate strategy is a plan of action than an organization chooses and implements to support specific goals.

4. Emergent strategy is a pattern of action that develops over time in an organization in the absence of missions and goals, or despite missions and goals.

Discussion Starter: Was Volkswagen‘s reintroduction of the Beetle reflects a deliberate or an emergent strategy? (In reality, it has elements of both—VW knew it needed to do something, which reflects deliberation. The new Beetle was first developed as a concept car and only produced when there was unexpectedly strong response to it.)

II.

USING SWOT ANALYSIS TO FORMULATE STRATEGY The starting point in formulating strategy is usually SWOT analysis.

SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.

The best strategies (1) exploit opportunities and strengths, (2) neutralize threats, and (3) avoid (or correct) weaknesses.

A.

Evaluating an Organization‘s Strengths Organizational strengths are skills and capabilities that enable an organization to conceive of and implement its strategies.

SWOT analysis divides organizational strengths into two categories: common strengths and distinctive competencies.

1.

2.

3.

Common organizational strengths a. A common strength is a skill or capability held by numerous competing firms. b. Competitive parity exists when large numbers of competing firms are able to implement the same strategy.

Distinctive competencies a. A distinctive competence is a strength possessed by only a small number of competing firms. b. Organizations that exploit their distinctive competencies often obtain a competitive advantage and attain above-normal economic performance.

Imitation of distinctive competencies a. Strategic imitation is the practice of duplicating another organization‘s distinctive competence and thereby implementing a valuable strategy. b. A sustained competitive advantage is a competitive advantage that exists after all attempts at strategic imitation have ceased.

Reasons a distinctive competence might not be imitable: a. Its acquisition or development may depend on unique historical circumstances that other firms cannot replicate. b. Its nature and character might not be known or understood by competing firms. c. It is based on complex social phenomena like teamwork or culture.

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Management 12e by Ricky W. Griffin Extra Example: Price competition is among the easiest strategies to imitate. For example, any time an airline lowers its prices to attract new customers, competing airlines are able to imitate its strategy within hours.

Discussion Starter: If a low-price strategy is easily imitated, is it likely to lead to a sustainable competitive advantage? Students should realize that that is unlikely. On the other hand, how has low pricing created a sustainable competitive advantage for WalMart? Hint: The students should examine how the low prices are achieved. They will find that Wal-Mart‘s actions, such as automating many functions and developing close relationships with suppliers, are themselves not readily imitated.

Extra Example: During World War II, Coca-Cola‘s CEO decreed that every U.S. soldier abroad should have access to a 5-cent bottle of Coke. With government assistance, the firm built 64 overseas bottling plants. This early entry into global markets gave Coke an advantage over Pepsi that it has never relinquished.

B.

Evaluating an Organization‘s Weaknesses Organizational weaknesses are skills and capabilities that do not enable (and may limit) an organization to choose and implement strategies that support its mission An organization has two ways of addressing weaknesses. It may need to make investments to obtain the strengths required to implement strategies that support its mission. Or it may need to modify its mission to meet its skills and capabilities.

In practice, organizations have a difficult time focusing on weaknesses.

A firm has a competitive disadvantage when it is not implementing valuable strategies that are being implemented by competing firms.

C.

Evaluating an Organization‘s Opportunities and Threats This requires analyzing an organization‘s environment.

1.

2.

Organizational opportunities are areas in the environment that, if exploited, may generate higher performance.

Organizational threats are areas in the environment that increases the difficulty of an organization‘s achieving high performance.

Discussion Starter: Do students think it is easier to assess environment opportunities and threats or organizational strengths and weaknesses. While the latter are more ―immediate,‖ such analysis may also pose threats to individuals within the organization.

Cross-Reference: Porter‘s five forces model of the competitive environment discussed in Chapter 3 can be used to characterize the extent of opportunity and threat in an organization‘s environment. Porter‘s five forces are the level of rivalry, power of suppliers, power of buyers, threat of substitutes, and threat of new entrants.

Group Exercise: Have small groups of students outline a hypothetical SWOT analysis of a local firm and/or your college or university.

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III. FORMULATING BUSINESS-LEVEL STRATEGIES Teaching Tip: Reinforce again the distinction between business- and corporate-level strategies. Use the PepsiCo example to illustrate formulation and implementation across different levels to remind students of the distinctions.

There are three approaches to formulating business-level strategy.

A.

Porter‘s Generic Strategies 1. Differentiation strategy is a strategy in which an organization seeks to distinguish itself from competitors through the quality of its products or services Teaching Tip: Note the examples listed in Table 7.1 of the text. As you discuss Porter‘s generic strategies, ask students to suggest other examples.

2.

3.

Overall cost leadership strategy attempts to gain a competitive advantage by reducing its costs below the costs of competing firms.

Focus strategy concentrates on a specific market, product line, or group of buyers.

Global Connection: A good example of the focus strategy is cosmetics and personal care products maker Aveda, which only manufactures products that are made from natural, botanical ingredients. The firm‘s products are designed to appeal to customers who are interested in ecology, the environment, or animal‘s rights.

B.

The Miles and Snow Typology 1. Prospector strategy is a strategy in which the firm encourages creativity and flexibility and is often decentralized.

Global Connection: Sony also uses a prospector strategy. The firm is constantly on the alert for new product ideas and/or ways to extend its current products into new markets.

2.

Defender strategy focuses on lowering costs and improving the performance of current products.

Extra Example: Another good example of a defender is Domino‘s Pizza. After losing ground to Pizza Hut and Little Caesar‘s, Domino‘s has been aggressively working to protect its current market share and gain back what was lost. In contrast to Sony which is a prospector, Matsushita is a defender in the consumer electronics industry.

3.

Analyzer strategy attempts to maintain its current businesses and to be somewhat innovative in new business.

Extra Example: Dell Computer also uses an analyzer strategy. Its expansion outside of the personal computer market has been slow and gradual, and it keeps as its primary orientation the protection of its lucrative direct sales niche.

4.

Reactor strategy has no consistent strategic approach; drifts with events, reacting to but failing to anticipate or influence those events.

Extra Example: Kmart might be a good example of a reactor. After once ruling the discount world, the firm grew complacent and was eventually passed by Wal-Mart. It had to merge with Sears in order to have a chance of survival.

C.

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Strategies Based on the Product Life Cycle Product life cycle is a model that portrays how sales volume for products changes over the life of products. Different stages of the life cycle call for different strategies.

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Management 12e by Ricky W. Griffin 1.

2.

3.

4.

Introduction stage—demand may be very high and sometimes outpacing the firm‘s ability to supply the product. Strategies focus on increasing production, keeping quality high, and managing inventories and cash flow.

Growth stage—more firms begin producing the product and sales continue to grow.

Strategies focus on ensuring quality and delivery and beginning to differentiate. The threat of new entrants in this phase could threaten an organization‘s competitive advantage so strategies to slow the entry of competitors are important.

Maturity stage—overall demand growth for a product begins to slow down and the number of new firms producing the product begins to decline. Product differentiation is still important but keeping costs low and beginning the search for new products or services are also important strategic considerations.

Decline stage—demand for the product or technology decreases, the number of organizations producing the product drops, and total sales decline. Organizations that fail to anticipate the decline stage in earlier stages may go out of business. Those that differentiate their product, keep their costs low, or develop new products or services may do well during this stage.

Discussion Starter: Ask students to identify examples of current products or services that appear to be at each stage of the product life cycle.

Global Connection: Some firms extend product life cycles by introducing them into less-developed foreign markets. For example, a line of home appliances that is entering the decline stage in Japan, Europe, or the United States might be seen as advanced technology in less developed regions.

IV. IMPLEMENTING BUSINESS-LEVEL STRATEGIES A.

Implementing Porter‘s Generic Strategies Teaching Tip: Note the role and importance of basic business functions in implementing business strategies.

1.

Differentiation strategy a.

Marketing and sales must emphasize the high-quality, high-value image of the organization‘s products or services. b. Accounting and finance controls the flow of funds without discouraging the creativity needed to constantly develop new products and services to meet customer needs. c.

Manufacturing must emphasize quality and meeting specific customer needs, rather than simply reducing costs. d. Culture must emphasize creativity, innovation, and response to customer needs.

Extra Example: The human resource function can also help implement a differentiation strategy by hiring people who can do high-quality work and training them to perform to the quality standards set by the firm.

2.

Overall cost leadership strategy a.

Marketing and sales focus on simple product attributes and how these attributes meet customer needs in a low-cost and effective manner. Advertising emphasizes the value of the product rather than on special features. b. Accounting and finance reduce costs through tight financial and accounting controls. Success depends on costs lower than competitors.

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d.

Manufacturing emphasizes increased volume of production to reduce the per unit costs of manufacturing. Products are designed both to meet customer needs and to be easily manufactured.

Culture tends to focus on improving the efficiency of manufacturing, sales, and other business functions.

Discussion Starter: Ask students to suggest circumstances where a firm that is using one generic strategy might choose to implement a different generic strategy.

B.

Implementing Miles and Snow‘s Strategies 1. Prospectors need to encourage creativity and flexibility. Decentralization often facilitates this.

2. Defenders tend to downplay creativity and innovation, focusing efforts on lowering costs or improving performance of current products. Prospectors often switch to defenders.

3. Analyzers must maintain their current businesses and be somewhat innovative in new businesses. They have tight accounting and financial controls as well as high flexibility, efficient production as well as customized products, and creativity along with low costs.

Discussion Starter: Again, ask why a firm that is successfully pursuing one of Miles and Snow‘s strategies might appropriately decide to implement a different one.

Group Exercise: Have groups of students identify differences and similarities between Porter‘s generic strategies and Miles and Snow‘s strategies.

V.

FORMULATING CORPORATE-LEVEL STRATEGIES Teaching Tip: Again, reinforce the distinction between business-level and corporatelevel strategies. Use again the PepsiCo example to remind students of the differences.

Most large businesses are engaged in several businesses, industries, and markets.

Each business or set of businesses within such a firm is frequently referred to as a strategic business unit, or SBU. The most important strategic issue at the corporate level concerns the extent and nature of organizational diversification.

Extra Example: PepsiCo is organized around two SBUs—packaged drinks (Pepsi, Lipton, etc.) and snack foods (Frito-Lay).

Diversification is the number of different businesses that an organization is engaged in and the extent to which these businesses are related to one another A.

Single-Product Strategy Single-product strategy is a strategy in which an organization manufactures just one product or service and sells it in a single geographic market.

Because survival depends on a single product, an organization works very hard to make the product a success. If the product is not accepted by the market or is replaced by a new product, the organization will suffer.

B.

x

Related Diversification Related diversification is a strategy in which an organization operates in several businesses that are somehow linked with one another

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Management 12e by Ricky W. Griffin 1.

Bases of relatedness include common technology, common distribution network, common marketing skills, common brand names and reputation, and common customers.

Discussion Starter: Ask students to identify the bases of relatedness between Starbucks coffee and Starbucks ice cream.

Extra Example: Ford‘s purchase of Jaguar a few years ago (it is now owned by Tata Motors) was an example of related diversification.

2.

Advantages of related diversification a) Reduces an organization‘s dependence on any one of its business activities and thus reduces economic risk. b) Reduces the overhead costs associated with managing any one business. c) Allows an organization to exploit its strengths and capabilities in more than one business (creates synergies). d) Synergy exists among a set of businesses when the businesses‘ economic value together is greater than their economic value separately.

Extra Example: A recent trend is a reduction in the number of businesses, to create an organization that consists of SBUs that are highly related. Examples include Vivendi‘s divestiture of publishing and water utilities in order to focus on electronic media.

Georgia Pacific sold its timber units and refocused on building and paper products.

Extra Example: When Georgia Pacific considered separating its paper products division from its building products division and creating two companies, investors failed to support the firm, showing that the separation was not seen as creating synergy.

C.

Unrelated Diversification Unrelated diversification is a strategy in which an organization operates multiple businesses that are not logically associated with one another.

1.

2.

Presumed benefits: businesses that use this strategy should have stable performance over time and resource allocation advantages.

Actual disadvantages: Corporate-level managers may not know enough about the unrelated businesses to provide helpful strategic guidance or to allocate capital appropriately. Also, because organizations that implement unrelated diversification fail to exploit important synergies, they are at a competitive disadvantage compared to firms that use related diversification. Almost all organizations have abandoned unrelated diversification as a corporate-level strategy.

Extra Example: General Electric is perhaps the most successful firm today that still uses unrelated diversification. GE owns businesses in such disparate industries as aircraft engines, appliances, finance and insurance, and plastics.

Extra Example: Seagram‘s, a large liquor company, once bought MCA, an entertainment business, from Matsushita Electric. This represents a case of unrelated diversification.

VI. IMPLEMENTING CORPORATE-LEVEL STRATEGIES A.

Becoming a Diversified Firm 1. A firm can diversify by internal development of its own new products and services within the boundaries of its traditional business operations.

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Extra Example: The Limited, which began as a women‘s clothing chain, added units such as Structure, a men‘s clothing chain, Limited Express for more trendy, less expensive styles, and Limited, Too, for children‘s fashions. In addition, the firm developed concepts that became the White Barn Candle Co. and Bath and Body Works.

2.

A firm can also become diversified by replacing its former suppliers and customers. a) Backward vertical integration occurs when a firm stops buying supplies from other companies and begins to provide its own supplies. b) Forward vertical integration occurs when a firm stops selling to one customer and sells instead to that customer‘s customers.

Extra Example: In the 1990s, Disney used forward vertical integration when it opened a chain of retail stores to sell Disney products directly to consumers, rather than going through other retailers, as it had done in the past.

Extra Example: Many petroleum firms have implemented both backward and forward vertical integration—they extract petroleum, refine it, distribute it, and retail it.

3.

Another common way for business to diversify is through mergers and acquisitions.

Management Update: With the decline in the stock market that began in 2001, mergers and acquisitions are no longer as popular as they were in the 1990s. Companies that merge today are finding it hard to obtain financing for the giant deals. a)

A merger is the purchase of one firm by another firm of approximately the same size.

Extra Example: Daimler-Benz and Chrysler merged in 1998, creating the world‘s thirdlargest automobile company. Citibank and Traveler‘s Insurance merged, creating Citigroup, the largest financial services firm in the U.S. More recent mega-mergers include the Kmart-Sears and the Kraft-Heinz mergers b)

An acquisition is the purchase of a firm by a firm that is considerably larger.

Extra Example: The Limited has grown by acquisition. It purchased Lane Bryant and later sold it. It also purchased Victoria‘s Secret intimates stores and Abercrombie and Fitch, a popular brand of clothing geared toward young adults.

B.

Managing Diversification The two major tools for managing diversification are organization structure and portfolio management techniques. The text covers organization structure in Chapter 10.

Portfolio management techniques are methods of determining which businesses to engage in and how to manage these businesses to maximize corporate performance.

1.

BCG (for Boston Consulting Group) matrix is a method of evaluating businesses relative to the growth rate of their market and the organization‘s share of the market.

The matrix uses two factors to evaluate an organization‘s set of businesses: market growth rate and market share. The matrix classifies the types of businesses that a diversified firm can engage in. a) b)

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Dogs are businesses that have a very small share of a market that is not expected to grow.

Cash cows are businesses that have a large share of a market that is not expected to grow substantially. Milked for cash to support question marks and stars.

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Management 12e by Ricky W. Griffin c) d)

Question marks are businesses that have only a small share of a quickly growing market.

Stars are businesses that have the largest share of a rapidly growing market.

Group Exercise: Have groups of students research and collect information about a large diversified firm. (Disney, General Motors, Sears, or Procter and Gamble) Then have the groups classify the firm‘s various businesses into the four cells of the BCG matrix.

Teaching Tip: Use Figure 7.3 as a framework for discussing the BCG matrix.

2.

GE Business Screen A more sophisticated approach than the BCG matrix, using a nine-cell matrix. Note that using the GE Business Screen parallels the application of SWOT analysis.

Teaching Tip: General Electric developed the Business Screen as a refinement and extension of the BCG matrix. Use Figure 7.4 to illustrate.

Group Exercise: If you had your students do the exercise discussed earlier (classifying a firm‘s businesses into BCG matrix cells), have them repeat the exercise (using the same information) for the GE Business Screen.

VII. INTERNATIONAL AND GLOBAL STRATEGIES A.

Developing International and Global Strategies Managers of international firms face more complexity and uncertainty in formulating and implementing strategies, but their firms also may be able to exploit three sources of competitive advantages unavailable to domestic firms.

1.

International firms can better exploit global efficiencies. a) Location efficiencies allow firms to locate facilities wherever they can best obtain a cost or differentiation advantage.

Global Connection: Microsoft employs many software engineers in India to produce programs for the firm. This is a location efficiency because they are able to obtain highquality work at a much lower cost than in the U.S. b)

B.

Economies of scale enable firms to lower their per unit cost of production because they are manufacturing in large quantities in facilities that serve several regions. c) Economies of scope lowers production costs per unit by sharing expenses across broader product lines.

2. Multimarket flexibility gives firms the ability to respond to changes in one region by making changes to their operations in other regions.

3. Worldwide learning is another advantage for international firms because firms can adopt best practices from wherever they are developed.

4. In practice, however, international firms are not usually able to exploit all three of these advantages simultaneously. For example, location efficiencies require centralization, while worldwide learning requires a more decentralized approach.

Strategic Alternatives for International Business International businesses typically adopt one of four strategic alternatives in their attempt to balance the three goals of global efficiencies, multimarket flexibility, and worldwide learning.

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1.

2.

3.

4.

Firms that use the home replication strategy apply the distinctive competences they developed in their home market to the foreign markets that they enter. This strategy works best when the firm‘s competences are valuable in many different types of markets.

The multidomestic strategy is used by firms that manage a portfolio of international business as relatively autonomous and independent units. This strategy works best when national demands for customization are high.

Firms following a global strategy are doing exactly the opposite of those using a multidomestic strategy. That is, they are standardizing across all countries. This strategy works best for a commodity-like product or in an industry that demands high efficiency.

Firms that pursue both centralization and decentralization at the same time, using whichever approach makes more sense in the particular circumstances, are using a transnational strategy. This strategy works best for complex industries and for companies with highly-skilled international managers.

END OF CHAPTER QUESTIONS Questions for Review 1.

Define the four parts of a SWOT analysis.

A SWOT analysis consists of an analysis of the internal strengths and weaknesses of a firm, and of the external opportunities and threats for the firm.

2.

Describe the relationship between a distinctive competency, a competitive advantage, and a sustained competitive advantage.

A distinctive competency is an internal strength or capability that is possessed by only a few firms.

When a firm is able to successfully exploit a distinctive competency, it may obtain a competitive advantage over its rivals. When the firm is able to maintain a competitive advantage over its rivals for an extended period of time, it becomes a sustained competitive advantage.

3.

List and describe Porter’s generic strategies and the Miles and Snow typology of strategies.

Porter‘s generic strategies include: (1) differentiation—the firm seeks to distinguish itself from competitors through the quality of its products or services; (2) overall cost leadership—the firm attempts to gain a competitive advantage by reducing its costs below the costs of competing firms; (3) focus—the firm concentrates on a specific market, product line, or group of buyers.

Miles and Snow‘s typology includes: (1) prospector—a highly innovative firm that is constantly seeking out new markets and new opportunities and is oriented toward growth and risk taking; (2) defender—concentrates on protecting current markets, maintaining stable growth, and serving current customers; (3) analyzer—combines elements of prospectors and defenders; (4) reactor—has no consistent strategic approach, drifts with events, reacting to but failing to anticipate or influence these events.

4.

What are the characteristics of businesses in each of the four cells of the BCG matrix?

A Star is a business with a large market share that competes in a rapidly growing industry. A Cash Cow also has a large market share but in an industry with a slow growth rate. A Question Mark business has only a small market share in a rapidly growing industry, while a Dog has a small market share of a slow-growth industry.

Questions for Analysis 5.

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Describe the process that an organization follows when using a deliberate strategy. How does this process differ when an organization implements an emergent strategy? © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Management 12e by Ricky W. Griffin A firm using a deliberate strategy will identify problems, gather and analyze information, formulate alternative courses of action, choose the best alternative, and then work to implement the chosen strategy. The process will be rational and systematic. On the other hand, an emergent strategy is one that is not planned in a formal or rational way, but rather it just emerges as a pattern in a series of actions. Actions are not pre-planned. When a firm notices that certain actions lead to desirable outcomes, those actions are repeated.

6.

Which strategy should a firm develop first—its business-level or its corporate-level strategy?

Describe the relationship between a firm’s business- and corporate-level strategies.

Both must be developed together, at the same time. Decisions made at the corporate level, such as to increase or decrease diversification, will then require changes in the firm‘s business-level strategy.

Decisions made at the business level, for example to pursue a differentiation strategy, will require changes at the corporate-level also. Most firms that are just being founded have only a single business, and in those firms, the business-level strategy will be developed first. However, for a diversified firm, corporate and business strategies are formulated and implemented simultaneously.

7. Volkswagen sold its original Beetle automobile in the United States until the 1970s. The original Beetle was made of inexpensive materials, was built using an efficient mass production technology, and offered few options. Then, in the 1990s, Volkswagen introduced its new Beetle, which has a distinctive style, provides more optional features, and is priced for upscale buyers. What was Volkswagen’s strategy with the original Beetle—product differentiation, low cost, or focus? Which strategy did Volkswagen implement with its new Beetle? Explain your answers.

The original Beetle was clearly part of a low cost strategy with its emphasis on efficiency, inexpensive components, lack of distinguishing features, and low price. The new Beetle signals a switch to a differentiation strategy because of its style, customization, up-scale target market, and higher price.

Questions for Application 8. Assume that you are the owner and manager of a small business. Write a strategy for your business. Be sure to include each of the three primary strategic components.

Students‘ answers will vary depending on the type of business they choose. Students should write a business-level strategy. The strategy should include a description of their intended distinctive competencies, scope, and resource deployment.

9. Interview a manager and categorize the business- and corporate-level strategies of his or her organization according to Porter’s generic strategies, the Miles and Snow typology, and extent of diversification.

Answers will, of course, vary. Students who interview a manager of a smaller firm will not likely find a firm that seems to be a prospector, however, or one that is very diversified because such firms tend to be larger businesses. It is also unlikely, of course, that any manager will categorize his or her business as a reactor.

10. Give an example of a corporation following a single-product strategy, a related diversification strategy, and an unrelated diversification strategy. What level of performance would you expect from each firm, based on its strategy? Examine the firm’s profitability to see whether your expectations were accurate.

Students‘ answers will vary, but here is an example: ―Toys 'R' Us is following a single-product strategy because their only business unit is focused solely on the retail sale of toys and other items for children. That strategy allows them to dominate that market, and the firm has done so. However,

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Chapter 8: Error! Unknown document property name. it also makes them vulnerable if that particular market changes, which is happening at this time as discount stores and online retailers are taking over the industry.

Yum! Brands, the owner of Pizza Hut, Long John Silver‘s, Kentucky Fried Chicken, Taco Bell, and A&W, is following a related diversification strategy focused on the fast-food industry. This strategy allows the development of shared competencies and synergies, while spreading overhead costs across all the businesses. This strategy is expected to have the highest returns, and Yum! Brands is in fact highly profitable due to synergies and shared competencies.

Sara Lee Corporation is pursuing unrelated diversification with products such as Jimmy Dean sausage, Playtex underwear, Hanes hosiery, Kiwi shoe polish, Earth Grains bread, and Ambi Pur air fresheners.

This strategy should provide stable performance over time and allow the sharing of resources.

However, the strategy also runs the risk of spreading management talent too thin so that none of the businesses receives enough attention to really thrive. Sara Lee is, in fact, experiencing low performance at this time in its businesses, compared to less diversified firms competing in the same industries.‖

END OF CHAPTER EXERCISES Building Effective Decision-Making Skills I.

Purpose This exercise will encourage students to consider how a SWOT analysis would be performed in a real organization, including which sources should be used, and the validity of the information at those sources.

II.

Format This decision-making exercise can be performed by individuals or groups. It should take about 30 minutes to complete.

III. Follow-Up A. List the sources you will use to obtain information about the firm‘s strengths, weaknesses, opportunities, and threats.

B. Then ask yourself: For what types of information are data readily available on the Internet?

What categories of data are difficult or impossible to find on the Internet? (Note: When using the Internet, be sure to provide specific websites or URLs.) C. Next, rate each source in terms of its probable reliability.

There will be considerable variation in students‘ answers to these three questions. Students should notice that there are a variety of likely sources, and that the sources differ a great deal in their reliability. Students should recognize that information about forces in the external environment is easier to obtain than information about the internal environment. In addition, companies don‘t typically publish information that might cast the firm in a negative light, such as information about weaknesses. The Internet provides easy access to many diverse types of information. However, the reliability of the information is often questionable, and students should be careful about relying on web-based data, unless they can verify the source‘s credentials.

D. Finally, ask yourself how confident you‘d be in basing decisions on the information that you‘ve obtained?

Again, answers will vary, but students will recognize that it is difficult to get reliable information about some issues. When that is true, decision makers will make choices based on the information they have, but they should be aware of times when their choices may be based on faulty information. This awareness may lead them to compensate for their lack of confidence, for example, by developing multiple contingency plans or performing statistical sensitivity analyses to check the robustness of their choices.

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Management 12e by Ricky W. Griffin

Building Effective Conceptual Skills I.

Purpose This in-class game demonstrates concepts about competition and cooperation through the use of a prisoner‘s dilemma situation.

II.

Format This game will take about 20 minutes to play through once. It can also effectively be played twice.

Follow-up and discussion time will vary.

III. Follow-Up Before playing this game in class, discuss the concepts of game theory and especially the prisoner‘s dilemma situation. Explain how competition gives the best results in some circumstances, while cooperation gives better results in other circumstances. This concept may be difficult for students to grasp, given the way that American business education focuses almost exclusively on competition.

The main message of this game is: ―It‘s nice to be nice, to the nice.‖ Students will find that competition is the preferred mode when rivals are behaving competitively, and cooperation is preferred in situations where rivals are willing to be cooperative. In a mixed case, faced with some rivals that are cooperative and some that are competitive, the cooperative firms can band together and effectively compete against the competitive firms by using their combined power.

You will need at least one board game of Trouble, by Milton Bradley, or a generic equivalent of that game. In the game, four players move pieces around a board in an attempt to complete the course first. When players land on an occupied space, they send their opponent‘s piece back to the start.

It‘s best to have one game for each four students. If you cannot do that, it‘s best to have at least four games so that students can watch each strategy being played out. However, it‘s possible to play the game with just one set if volunteers come forward to play the game in front of the entire class.

There are four different rule sets, which can be played simultaneously, and then the results reported to the class. Alternatively, the rule sets can be played sequentially.

For all rules sets: Four players per game. Each player uses only 2 pieces, not 4 (in order to make the game play faster). Players start moving pieces on their first roll of the dice, rather than waiting for a specific number (again, for speed).

Rule Set 1: This is the cooperative game. Players should try not to land on an occupied space, and they may never send any of their opponent‘s pieces back to the start. If they must land on an occupied space, the player should put their piece in the next free spot, not displacing his or her opponent.

Rule Set 2: This is the competitive game. Players must land on occupied spaces if possible, and they must always send their opponent‘s piece back to the start when they do.

Rule Set 3: This is the mixed case, ―wolf among the sheep‖ game. One player is chosen at the start to be the competitive one, and the group is informed. During play, the competitive player plays by Rule Set 2, sending his or her opponent‘s pieces back to the start whenever possible. The three cooperative players play by Rule Set 1. That is, they may never send opponent‘s pieces back to the start.

Rule Set 4: This is the mixed case, ―retaliation‖ game. One player is chosen at the start to be the competitive one, and the group is informed. During play, the competitive player plays by Rule Set 2, sending his or her opponent‘s pieces back to the start whenever possible. The three cooperative players play by Rule Set 1, when they are facing another cooperative player. That is, they should not send a cooperative player‘s pieces back to the start. However, the three cooperative players play by

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Rule Set 2, when they are facing the competitive player. That is, they should try to send the competitive player‘s pieces back to the start whenever possible.

Students will find that the cooperative game (#1) goes quickly and smoothly. All players do about equally well, except for the random nature of the dice roll. Students sometimes say this game is ―boring.‖ However, remind them that boring is undesirable in a board game, but might be very desirable in industries where ―excitement‖ might mean loss of jobs or bankruptcy.

Students will find that the competitive game (#2) takes the longest, as players must constantly start over. All players do about equally poorly. This game may be more fun than Game 1, but again, remind students that in real life, intense competition can be damaging and expensive.

Students will find that the wolf-among-the-sheep game (#3) seems very unfair, as the competitive student has a strong advantage. Explain to students that this is the case that prevails when some competitors compete strongly and others do not. It‘s also analogous to situations such as one student cheating on an exam while all the others are honest.

Students will find that retaliation game (#4) seems to be fair, because the competitive student often does not win. This is the situation in which some rivals cooperate for mutual benefit with other trusted rivals, while competitive rivals find that the others ―gang up‖ and use their combined power to squash any competitive tactics. This is analogous to the situation where the honest students study together to help each other, excluding the cheating student from the study group.

A. B. C.

Break into small groups and play the board game according to the instructions you receive from your professor.

Present your group‘s results to the class.

Analyze the results reported by every group and be prepared to share your thoughts about the outcomes.

Although there is a random element in this game, results are likely to be as reported above.

Explain the outcomes, and then ask the students, ―What do you learn about business competition and cooperation from this game?‖ Another good approach is to ask students to name business situations in which this type of thinking about cooperation and competition could be useful. Students will be able to think of examples such as in managing their careers and relationships at work, industry competition, and so on.

MANAGEMENT AT WORK The Most Admired Strategist of the Twentieth Century As a leader of the African National Congress (ANC), Nelson Mandela played a significant role in planning the strategy of the organization dedicated to the overthrow of the apartheid regime in South Africa. A sentence of life in prison forced Mandela to embrace a long-term strategy. Mandela never ceased pursuing strategies designed to ensure the fall of the current regime and the success of the new government. The government released Mandela from prison in 1990, after 27 years. In 1994, the ANC won 62 percent of the country‘s first election in which members of all races could vote. The people voted Nelson Mandela as the president.

Management Update: In the most recent election, held in 2014, the ANC continued to win the majority of seats in Congress and has been the governing party in South Africa since the end of apartheid.

1.

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Case Question 1: In what ways can the strategies of an organization like the African National Congress (ANC) be compared to those of a business organization? In order to respond to this question, focus on the chapter sections entitled ―The Nature of Strategic Management‖ and ―Using SWOT Analysis to Formulate Strategy.‖

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Management 12e by Ricky W. Griffin Both use strategic management to approach their opportunities and challenges in an ongoing process aimed at formulating and implementing effective strategies aligned with their environment and goals. Both want to accomplish their mission by exploiting opportunities and strengths while neutralizing its threats and avoiding (or correcting) its weaknesses.

2.

Case Question 2: ―Always keep your eye on the long-term goal,‖ advises Norman Chorn: [A]t every set-back and obstacle, [Nelson Mandela] kept his sights fixed on his objective and did not get distracted. He recognized that he would have to adjust his approach as the circumstances changed, but he never wavered in his goal.

Strategic leadership is about having a longer term, big-picture view of your goal.

It means that you have to be flexible in the particular tactics that you use….

[W]ith every step you take, you should be able to explain how it gets you closer to your final objective.

First, explain in your own words what Nelson Mandela‘s long-term goal was. Then show (as precisely as possible) how one or two of his strategic decisions was aimed directly at that long-term goal. How might he (or you) have been distracted in each case by the appeal of a shorter-term tactic?

His goal was the overthrow of Apartheid and the end of racial repression in South Africa and a united government elected by the free people. Mandela‘s decision to use violence to fight violent oppression helped achieve a long-term goal of keeping the people united so there would be a country, and a people, to govern after Apartheid ended. His refusal to acceptance freedom from jail if he renounced his acceptance of violence reinforced this goal of a united people, under one leadership. Mandela could have been easily distracted from either strategy. As he saw the results of violence, he was surely reconsidering his decision. He could easily have left jail behind him if he agreed to the terms. Because those terms contradicted his political stance, he refused.

3.

Case Question 3: According to Paul H. Schoemaker, What Nelson Mandela offers aspiring strategic leaders is a living example of how complex societal forces, uncompromising values, and key moments of decision can be woven together over time, and across political, legal and economic domains, into a compelling vision.

In what ways might the contemporary CEO of a large organization put these lessons to use? To approach this question, first imagine a scenario in which such a CEO is faced with opportunities and challenges analogous to those faced by Mandela. Then offer a series of suggestions (as concrete as possible) on how he or she apply lessons learned from Mandela‘s experience.

CEOs can learn that a compelling vision gives direction and purpose to a cause. A newly hired female CEO of a high-tech firm notices the only other female employees work in a secretarial capacity. She may envision a firm with female employees at all levels and in all areas of production. She may begin by asking questions of the managers and staff, getting a good sense of the culture of the firm. The CEO may then identify ways to enact her vision, such as actively recruiting female coders and promoting some secretaries into other areas of production. She should keep the long-term objective in mind and work slowly toward her goals.

4.

Case Question 4: A former anti-apartheid leader recalls that Mandela did not try to lead the movement away from armed resistance. He was, however, ―a great leader because he recognized that the movement had become a civil insurrection, a largely nonviolent struggle. A great leader is one who recognizes where the movement is and leads it accordingly, not one who says, ‗Do it my way!‘‖

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First, explain in your own words what Nelson Mandela‘s long-term goal was. Then explain why, as a strategic tactic, nonviolence was ultimately more consistent than violence with Mandela‘s longterm goal. What features in the ANC‘s social and political environment dictated that nonviolence would ultimately be necessary for Mandela to reach his long-term goal?

Mandela‘s long-term goal was a united, free country. Mandela did not want to use violence but he witnessed peaceful protests be met with violence from the government. The violence from the government was escalating and the younger people were willing to fight back. He knew if he did not sanction the violence, the united resistance could split and become ineffective. Mandela realized that time was on his side as Apartheid was an unsustainable practice that would break down eventually.

CHAPTER 8

Managing Decision Making and Problem Solving CHAPTER SUMMARY This chapter deals with managerial decision making and problem solving. As noted in Chapter 1, decision making relates to all management functions. However, it is most closely related to planning, so we discuss it here in the planning section of the book. After exploring the nature of decision making, we discuss rational and behavioral perspectives on decision making. This is followed by a discussion of group and team decision making.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Define decision making and discuss types of decisions and decision-making conditions.

2.

Discuss rational perspectives on decision making, including the steps in rational decision making.

3.

Describe the behavioral aspects of decision making.

4.

Discuss group and team decision making, including the advantages and disadvantages of group and team decision making and how it can be more effectively managed.

MANAGEMENT IN ACTION Moneyball on Steroids The chapter opening case profiles Jeff Luhnow and his rise to general manager of the Houston Astros.

Luhnow‘s ability to compile, and use, large volumes of information allows him a glimpse at a bigger picture, likely unknown to rivals. Luhnow‘s front-office team synthesizes quantitative and qualitative information on players, allowing them to make better retention decisions for each player.

Management Update: Wikipedia Houston Astros page states ‗the 2015 season has so far been a shock to both the team and its fans, as the Astros seemed to become a playoff contender almost overnight.‘ They currently have a shot at the playoffs as a Wildcard.

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Management 12e by Ricky W. Griffin

LECTURE OUTLINE I.

THE NATURE OF DECISION MAKING Management Update: In 2006, Disney acquired Pixar for over $7 billion, thus ending months of speculation as to the future of the relationship between these strategic alliance partners. The relationship between Disney‘s Michael Eisner and Pixar‘s Steve Jobs had been testy at times. However, with Robert Iger taking over from Eisner as Disney‘s CEO, the two companies were able to agree on this important deal.

A.

Decision Making Defined 1. Decision making is the act of choosing one alternative from among a set of alternatives.

2. The decision-making process includes recognizing and defining the nature of a decision situation, identifying alternatives, choosing the ―best‖ alternative, and putting it into practice. a) ―Best‖ implies that decisions should be effective in helping the organization achieve its goals. b) Decisions can be made in response to either problems or opportunities. c) Outcomes of decisions may occur long after the decision is made.

Teaching Tip: Make sure students see the subtle distinctions between decision making and the decision making process.

B.

Types of Decisions 1. A programmed decision is one that is fairly structured or recurs with some frequency or both.

Extra Example: Wal-Mart is an example of a firm that relies heavily on programmed decision making. Whenever inventory levels of various products such as coffee makers, drops below a predetermined level, replacements are automatically ordered.

Teaching Tip: Provide students with an example of a school-related programmed decision that affects them. For example, course offerings, enrollment limits, and exam schedules are often set using programmed decision rules.

2.

A nonprogrammed decision is relatively unstructured and occurs much less often.

Group Exercise: Ask student groups to identify three examples each of programmed and non-programmed decisions that they have recently made or been affected by.

Discussion Starter: Point out to students that programmed decisions are usually less critical to the firm and are made at lower levels of the organization, while nonprogrammed decisions involve top management and important issues. Ask them to explain why this is so. Can the students think of any exceptions, and why did they occur?

C.

Decision-Making Conditions 1.

Decision making under certainty occurs when the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative, a state of certainty exists.

Teaching Tip: Stress the fact that few management decisions are actually made under a condition of certainty. For example, it is impossible to know with certainty what competitors will do, what new technologies will develop, and so forth. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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2.

A more common decision-making condition is a state of risk. Under a state of risk, the availability of each alternative and its potential payoffs and costs are all associated with probability estimates.

Extra Example: Stock analysts make predictions about the price movement of individual stocks or the market as a whole, based on probabilities derived historical stock prices.

3.

Decision making under uncertainty occurs when the decision maker does not know all the alternatives, the risks associated with each alternative, or the consequences each alternative is likely to have, known as a state of uncertainty.

For effective decisions under uncertainty, managers must acquire as much relevant information as possible and approach the situation from a logical and rational perspective.

Group Exercise: Break students up into small groups. Have each group identify examples they have recently faced that illustrate each decision making condition.

Global Connection: Much of the foreign expansion that firms are doing today is characterized by uncertainty. For example, point out to students how social, political, and economic risk in foreign markets all contribute to uncertainty.

II.

RATIONAL PERSPECTIVES ON DECISION MAKING A.

The Classical Model of Decision Making 1. The classical decision model is a prescriptive approach that tells managers how they should make decisions; assumes that managers are logical and rational and acting in the best interests of the organization.

2. Assumes managers can effectively eliminate uncertainty to achieve a decision condition of certainty.

2. They evaluate all aspects of the decision situation logically and rationally. These conditions rarely, if ever, actually exist.

Extra Example: Charles Knight, CEO of Emerson Electric, constantly stresses to his managers the need to be rational, logical, and dispassionate when they make decisions.

Teaching Tip: Be sure to note the distinction between classical decision making, as discussed here, and the classical management perspective covered in Chapter 2.

B.

Steps in Rational Decision Making Teaching Tip: Note the details in Table 8.1. The table shows the general steps involved in rational decision making and provides a running example to illustrate each step.

1.

Rational decision making keeps the decision maker focused on facts and logic and helps guard against inappropriate assumptions and pitfalls. a) The first step in rational decision making is recognizing that a decision is necessary. To do this, the problem must be defined clearly and fully.

Extra Example: After several years of poor financial performance, Kmart defined its decision situation as a need to recover from bankruptcy and regain lost sales and profits. b)

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The second step is to identify alternative courses of action that might be effective.

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Management 12e by Ricky W. Griffin Extra Example: Kmart saw its primary options as (1) selling off its specialty store businesses to raise cash, (2) selling off its discount operations and concentrating on specialty retailing, or (3) shutting down the company. c)

Next, managers should evaluate the alternatives generated according to its (in order) feasibility, satisfactoriness, and affordable consequences.

Extra Example: Kmart evaluated each of its three options using this criteria. Option 1 was found to be feasible, satisfactory, and to have affordable consequences. Option 2 was not feasible because no buyer would likely pay what the firm needed. Option 3 was feasible, but management knew that it was not satisfactory to shareholders. d)

The next step, the most critical step, is the selection of the ―best‖ alternative. Each alternative should be evaluated, in order, in terms of its feasibility, its satisfactoriness, and its consequences.

Extra Example: Based on its evaluation of the alternatives, Kmart made the decision to sell off its specialty stores. The plan is to use the cash generated by those sales to upgrade the firm‘s discount stores and to try to become more competitive with Wal-Mart. e)

Implementation occurs when managers put the chosen alternative into practice.

f)

Finally, managers must follow up and evaluate the results to ensure that the alternative chosen has served its original purpose. If it does not, corrective measures must be taken.

Extra Example: Kmart continues to pursue its refocus strategy by closing unprofitable stores, upgrading product lines, cleaning up accounting problems and making operations more efficient. However, the store continues to lose sales to rivals Wal-Mart and Target.

Extra Example: Kmart and Sears agreed to merge to form what it believes would be a formidable force in the retailing industry. It remains to be seen where the vaunted cost savings would be realized and the merged company can successfully take on its rivals.

C.

Evidence-Based Management Evidence-based management, or EBM is a call from experts reminding managers of the need to use rationality and evidence when making decisions.

Their recommendations: 1. Face the hard facts and build a culture in which people are encouraged to tell the truth, even if it‘s unpleasant.

2. Be committed to ―fact-based‖ decision making which means being committed to getting the best evidence and using it to guide actions.

3. Treat your organization as an unfinished prototype, encourage experimentation and learning by doing.

4. Look for the risks and drawbacks in what people recommend (even the best medicine has side effects.)

5. Avoid basing decision on untested but strongly held beliefs, what you have done in the past, or on uncritical ―benchmarking‖ of what winners do.

III. BEHAVIORAL ELEMENTS IN DECISION MAKING

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Decisions are often made with little consideration for logic and rationality. Sometimes decisions work and sometimes they do not. An important ingredient in how these forces work is the behavioral aspect of decision making.

The administrative model better reflects subjective considerations. Other behavioral aspects include political forces, intuition and escalation of commitment, risk propensity, and ethics.

A.

The Administrative Model 1. The administrative model argues that: decision makers use incomplete and imperfect information; are constrained by bounded rationality; and tend to ―satisfice‖ when making decisions. a) Bounded rationality suggests that decision makers are limited by their values and unconscious reflexes, skills, and habits, and by incomplete information and knowledge. b) Satisficing suggests that rather than conduct an exhaustive search for the best possible alternative, decision makers tend to search only until they identify an alternative that meets some minimum standard of sufficiency.

2. The administrative model is quite different from the classical model, but is equally useful in understanding decision making.

Group Exercise: Have students examine their own personal choices regarding college and major in terms of bounded rationality and satisficing.

Discussion Starter: Is satisficing is always a bad thing? In fact, so long as high-quality alternatives are being considered, satisficing is an efficient way to make decisions.

Teaching Tip: Stress that the classical and administrative models of decision making are not mutually exclusive. Most decisions are made using ingredients from both models.

B.

Political Forces in Decision Making A coalition is an informal alliance of individuals or groups formed to achieve a common goal.

Discussion Starter: Ask students if they have ever been part of a coalition that determined the outcome of a decision.

Cross-Reference: Note that political behavior is discussed more fully in Chapter 16.

C.

Intuition and Escalation of Commitment 1. Intuition is an innate belief about something without conscious deliberation Extra Example: Intuition is often used by top managers in making decisions. For example, Michael Eisner, former CEO of Disney, has indicated that he relied heavily on his instincts and intuition when decisions had to be made.

Teaching Tip: Note that even though managers may sometimes seem to make decisions based purely on intuition, in reality they are also relying on their experience, judgment, and other resources, even if they are doing so unconsciously!

2.

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Escalation of commitment occurs when managers make a decision and become so committed to it that they stay with it even when it appears to have been wrong.

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Management 12e by Ricky W. Griffin Extra Example: The military is frequently guilty of escalation of commitment. Decision makers will commit funds for a new weapons project, for example, and will continue to fund the project even when information suggests they should stop.

Discussion Starter: Ask students if they have ever gambled in Las Vegas or a similar location. Note the tendency among gamblers who lose money to keep playing in the hopes of winning back their money. This represents an escalation of commitment.

D.

Risk Propensity and Decision Making Risk propensity is the extent to which a decision maker is willing to gamble when making a decision.

Global Connection: The extent to which managers are comfortable with different degrees of risk varies across cultures. English managers tend to avoid risk, U.S. managers are more comfortable with risk, and Italian managers are quite risky in decision making.

E.

Ethics and Decision Making Just as decisions are influenced by politics and risk propensity, they are also influenced by the decision makers‘ personal ethics or their own beliefs about right and wrong.

Discussion Starter: Ask students for examples of recent ethical dilemmas they have faced when making a decision.

IV. GROUP AND TEAM DECISION MAKING IN ORGANIZATIONS A.

Forms of Group and Team Decision Making 1. Interacting groups and teams is a decision-making group or team in which members openly discuss, argue about, and agree on the best alternative. This is the most common form of decision-making group.

Extra Example: At ODS Corporation in Tokyo, all decisions are a group consensus. The typical employee spends seven hours a week in group decision-making meetings.

Global Connection: Group decision making is common in Japan. Indeed, managers who make decisions without involving their subordinates may be perceived as bad managers.

2.

B.

Delphi groups are a form of group decision making in which a group is used to achieve a consensus of expert opinion. The Delphi procedure solicits input from a panel of experts who contribute individually. Their opinions are combined and ―averaged.‖ These results are fed back to the experts and the process continues until a solution is reached.

Delphi groups do not meet in person.

3. Nominal groups are a structured technique used to generate creative and innovative alternatives or ideas. An informed group of participants writes down as many alternatives as it can think of. These ideas are listed on a board in round robin fashion.

After the ideas are listed, they are discussed. Then the members vote on the alternatives, and the highest-ranking alternative is selected.

Advantages of Group and Team Decision Making 1. The availability of more information and knowledge.

2. Groups tend to generate more alternatives.

3. Participants in group decision making are more likely to accept the group decision and communicate it effectively to others.

4. For all these reasons, groups tend to make more effective decisions.

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Discussion Starter: Ask students for examples of when they participated in group decision making. Ask if they prefer to make decisions alone or as part of a group or team.

C.

Disadvantages of Group and Team Decision Making 1. One disadvantage is the additional time and resources required.

2. Group decision making may lead to undesirable compromises.

3. One person may dominate the group.

4. Groupthink occurs when the group‘s desire for consensus and cohesiveness overwhelms its desire to reach the best possible decision.

Discussion Starter: Ask if anyone has ever had firsthand experience with any of the advantages or disadvantages of group and team decision making as listed in Table 8.2.

D.

Managing Group and Team Decision-Making Processes 1. Managers who are aware of the pros and cons of group decision making can be more careful about how they manage the group‘s time and resources.

2. Effective managers can avoid dominance by a single member.

3. To avoid groupthink, the group should analyze all alternatives critically and allow divergent viewpoints to be presented. It is also a good idea to ask one member to play the role of devil‘s advocate.

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the difference between programmed and nonprogrammed decisions. What are the implications of these differences for decision makers?

Programmed decisions are either structured or recur frequently or both. Non-programmed decisions are those that cannot be structured or that occur with much less frequency. Programmed decisions can be made with less time and other resources. In many cases, programmed decisions can be made routine so that real decision making is unnecessary. On the other hand, non-programmed decisions are typically complex, lengthy, and difficult to resolve.

2.

Describe the behavioral nature of decision making. Be certain to provide some detail about political forces, risk propensity, ethics, and commitment in your description.

Political forces in decision making are common. Coalitions often attempt to influence the decisionmaking process in organizations. Some managers are very conservative and try to adhere to the rational model of decision making. Others are more aggressive and willing to take bigger risks.

Each individual has his or her own beliefs about which behavior is right and wrong. These beliefs factor into the decision-making process. Intuition and the escalation of commitment may also have an impact on the decision.

3.

What is meant by the term escalation of commitment? In your opinion, under what conditions is escalation of commitment likely to occur?

Escalation of commitment occurs when a decision maker persists in supporting their original decision in spite of evidence that demonstrates that that decision is ineffective. Escalation of commitment is likely to occur decision makers must make a public show of support for their decision. Once they have done that, it is much more difficult for them to admit they were wrong.

4.

Explain the differences between three common methods of group decision making— interacting groups, Delphi groups, and nominal groups.

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Management 12e by Ricky W. Griffin Interacting groups are the most common of the three and consist of a group of individuals who meet, freely discuss issues, and then reach a decision. Delphi groups are highly structured panels of experts. The experts do not meet. Instead, their responses are collected and reported to the group.

This process continues until consensus is reached. Nominal groups meet together, but they do not freely interact. Instead, they individually generate ideas, share them with the group, clarify and discuss the ideas, and then reach a final decision with a vote.

Questions for Analysis 5.

Was your decision about what college or university to attend a rational decision? Did you go through each step in rational decision making? If not, why not?

Two extreme possible answers are: (1) My decision to come to this university was not a rational one. My mother attended this school and most of my high school friends decided to come here.

I skipped most of the steps in the rational decision-making process. (2) My decision to come to this university was quite rational. I wanted to major in accounting, and I wanted to stay within a fivehour drive of home. With that in mind, I set out to find all of the college within a five-hour drive that offered accounting. I then rated these colleges based on cost and quality. I applied to 10 schools that were within my financial means. This was my first choice, and I was pleased when I was accepted for admission.

6.

Most business decisions are made under conditions of either risk or uncertainty. In your opinion, is it easier to make a decision under a condition of risk or a condition of uncertainty?

Why? Answers will vary. Some students may prefer risk in which the possible alternatives are known and there is some probability associated with each alternative. Other students, who are more comfortable in open-ended situations, may prefer uncertainty. In a condition of uncertainty, the alternatives and probabilities are unknown, which some students might find gives them more freedom in their decision.

7.

Consider the following list of business decisions. Which decisions would be handled most effectively by group or team decision making? Which would be handled most effectively by individual decision making? Explain your answers.     

A decision about switching pencil suppliers A decision about hiring a new CEO A decision about firing an employee for stealing A decision about calling 911 to report a fire in the warehouse A decision about introducing a brand new product

Switching pencil suppliers is a fairly routine, programmed decision and could be made by an individual. Hiring a new CEO will affect every stakeholder group and the future of the organization, and so many different types of input are needed into the process. Firing an employee for stealing will likely be a group decision making process in order to guard against charges of discrimination or unfair termination. Also, human resources managers are likely to be involved in any firing. Calling 911 should not be a group decision because speed is essential. There‘s simply not time to meet as a group and discuss the fire. Introducing a brand-new product must be a group decision because it will require information from accounting, finance, marketing, logistics, R&D, and other functions within the firm.

Questions for Application 8. Interview a local business manager about a major decision that he or she made recently. Try to determine whether the manager used a rational decision-making process or whether behavioral elements were also present. If the process was wholly rational, why do you think © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Chapter 8: Error! Unknown document property name. there was no behavioral component? If the process contained behavioral components, why were these components present?

Answers will vary, but most students will find that virtually every important decision in a real organization has some behavioral components. Managers‘ values, intuition, satisficing, escalation of commitment, differing risk propensities, ethics, or political forces are likely to play a role in any important choice.

9. Describe a recent decision you made that relied on intuition. In your opinion, what experiences formed the source of your intuition? Did the decision lead to attainment of the desired outcomes? Did your intuition play a positive or negative role in goal attainment?

Explain.

Students should have little trouble thinking of a decision that involved the use of intuition. They should recognize that experience is often the unconscious force behind intuition. Whether the intuition was helpful or not, and whether the goal was attained, will differ for each student.

10. Interview a department head at your college or university to determine whether group or team decision making is used. If it is, how does the head attempt to overcome the disadvantages of group decision making? Are the attempts successful? Why or why not?

University faculty make many decisions where group or team decision making will be used, such as hiring new faculty, changing the curriculum, and so on. Students‘ answers will vary depending on what they learn from the subject of their interview.

END OF CHAPTER EXERCISES Building Effective Conceptual Skills I.

Purpose This exercise gives students a demonstration of the power of behavior factors in decision making.

II.

Format The survey portion of this exercise takes about 10 minutes. Discussion time will vary.

III. Follow-Up Duplicate the following forms pages and then cut along the lines so that every student will have one slip of paper. Distribute the slips to students and ask them to fill them out, with no talking or sharing answers. Try to alternate Form P and Form N so that students will not be able to look at each other‘s answers.

After students answer the question, ask for a show of hands and fill in each of the squares in this matrix. Show the chart to the students.

Positive

Negative

Certainty

number who chose A

number who chose C

Risk

number who chose B

number who chose D

Every one of the outcomes (A, B, C, and D) have exactly the same expected value, that is, that 200 people will live and 400 people will die. There are two differences in the way that the scenarios are presented. Form P (for positive) phrases all the outcomes in positive terms, focusing on how many lives will be saved. Form N (for negative) phrases all the outcomes in negative terms, focusing on

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Management 12e by Ricky W. Griffin how many deaths will occur. On both forms, students are choosing between a known outcome and a probabilistic or risky outcome.

The main message of this survey is: ―Humans are non-rational.‖ In a perfectly rational world, students would be indifferent between the four cells of the matrix, and they all would have about the same number of responses. However, the students will most likely find that more people chose the A and D cells. The reason has to do with how individuals think about risk. When faced with a positive outcome or gain, people tend to want to hold on to it. They imagine the regret they would feel if they took the risk (chose B over A) and then got the bad outcome. But when faced with a negative outcome or loss, people tend to want to avoid the loss if at all possible and are even willing to take big risks to do so. They imagine how pleased they will feel if they manage to avoid the loss.

Students may reject this interpretation. Often, they don‘t like being told that they are non-rational.

Reassure them that this is universal and doesn‘t mean anything bad. It just shows the prevalence of behavioral factors in decision making. If they continue to resist or need further demonstration, use the following scenario.

Say to the students, ―Imagine I offer you a (hypothetical) gift. I will pay anyone $10 right now.

Or, if you prefer to gamble, I will let you pick a number between 1 and 10. If you choose one of the nine ‗wrong‘ numbers, I will pay you nothing. But if you choose the one ‗right‘ number, I will pay you $100. Assume the gamble is honest. What would you do?‖ Point out to them that the expected value is the same in both cases: $10. The only difference is the choice between a certainty and a risk. Ask for a show of hands, and record the number who would prefer the certainty and the risk.

Then say to the students, ―Now, imagine I lock the classroom door. I will permit anyone to leave if they pay me $10. Or, if you prefer to gamble, I will let you pick a number between 1 and 10. If you choose the one ‗wrong‘ number, you must pay me $100 to leave. But if you choose one of the nine ‗right‘ numbers, you may leave for free. Assume the gamble is honest. What would you do?‖ Again, both scenarios give an expected value of $10. Again, ask for a show of hands and record the responses. Most students will prefer the sure $10 gift and the chance to gamble for the right to leave the room.

As a further demonstration, you can get most of the students to change their vote if you increase or decrease the amount of money. Students who are willing to give up a sure $10 to gamble for $100 probably aren‘t willing to give up a sure $10,000 to gamble for $100,000. The regret at losing the larger amount would be simply too much.

If the students like these games (and most will) here‘s a couple of other, related examples.

Scenario A: Imagine that you decided to see a play and paid the admission price of $10 per ticket. As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket?

Scenario B: Imagine that you decided to see a play, and you planned to buy a $10 ticket at the door. But when you arrived at the ticket booth, you discovered that you have lost a $10 bill from your wallet?

Would you pay $10 for a ticket?

Most students will not want to pay for another ticket in Scenario A, but will in Scenario B. Although these two events are exactly the same in their financial consequences, students irrationally ―blame‖ the theater for their problems in Scenario A, while Scenario B seems to be nobody‘s fault.

Scenario A: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The salesman informs you that the calculator you wish to buy is being given away for free at another branch of the store, located 10 minutes‘ drive away. Would you make the trip to the other store?

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Scenario B: Imagine that you are about to purchase a jacket for $150 and a calculator for $25. The salesman informs you that the jacket is on sale for $125 at another branch of the store, located 10 minutes‘ drive away. Would you make the trip to the other store?

This is an example of anchoring and adjustment. A $25 discount on a $25 item seems much larger than a $25 discount on a $150 item. Most students therefore will make the drive in Scenario A, but not in Scenario B, although financially, the two choices are equivalent.

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1.

Answer the list of brief questions that your professor will provide to you. No answer is correct or incorrect; simply choose your most likely response. Then, when the professor asks, share your answers with the class.

2.

Discuss the answers given by the class. Why do students‘ answers differ?

Students will likely find that there are more answers in cells A and D, for reasons given above.

3.

What have you learned about from this exercise about decision-making biases and risk propensity?

Students will learn about how risk propensity changes for one individual, depending on whether the decision frame is negative or positive. However, more fundamentally, students will learn that decision-making biases are present in everyone and that they will impact many decisions. Being aware of and understanding one‘s biases can therefore lead to more effective decision making.

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Management 12e by Ricky W. Griffin

Forms for Conceptual Skills Exercise ____________________________________________________________________________________ Answer the question below.

Form P Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor?

If Program A is adopted, 200 people will be saved.

If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved. _____________________________________________________________________________________ Answer the question below.

Form N Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor?

If Program C is adopted, 400 people will die.

If Program D is adopted, there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die. _____________________________________________________________________________________ Answer the question below.

Form P Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor?

If Program A is adopted, 200 people will be saved.

If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved. _____________________________________________________________________________________ Answer the question below.

Form N Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Which program do you favor?

If Program C is adopted, 400 people will die.

If Program D is adopted, there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die. _____________________________________________________________________________________

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Building Effective Decision-Making Skills I.

Purpose This exercise aids students in developing their decision-making skills by giving them exposure to making decisions using the nominal groups technique.

II.

Format This in-class exercise is done by the entire class and takes about 30 minutes to complete. Follow-up questions may be answered in class or assigned for students to answer outside of class. Follow-up discussion should take an additional 10–15 minutes.

III. Follow-Up Describe the problem situation to the students. Then allow 5–10 minutes for individual solutions to be written down, silently. Be sure to encourage ―second round‖ ideas after the students have heard the initial, individual solutions. This second round of idea generation is one of the chief advantages of the nominal groups technique. Also be sure to enforce strict ―majority rule‖ voting on the final solution. This is another hallmark of nominal groups.

Problem Situation: Assume that this group represents the top administrators of a state-run university with about 5,000 students. The university is currently facing a problem. Over the last 3 years, there have been an increasing number of applicants to the school. However, the university‘s staff and physical facilities have remained at the same level. The school is under pressure from students and their families to admit more applicants. The state legislature, which provides over half of the university‘s funds, is responding to this pressure by asking the university to increase enrollment by at least 1,000 students, however, they are unwilling to increase funding at all to help pay for the expansion.

A. B.

C. D. E. F.

G. H.

I.

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Listen as your professor describes the problem situation to the class.

Write down as many creative responses to the problem as you can. Don‘t worry about whether or not they‘re practical. In fact, try come up with as many unexpected—even ―far out‖— responses as you can.

When your instructor calls on you, share your list with the class.

Query other students about their suggestions for clarification only. Do not, under any circumstances, reveal whether you think any idea is ―good‖ or ―bad.

After all the individual ideas have been listed and clarified, add to the list any other ideas that you‘ve developed while participating in the in-class part of the exercise.

Vote on the list, focusing on the ―creativity‖ of individual items. Which suggestion does the class regard as the ―best‖ solution to the problem at hand?

Students‘ answer will vary. Encourage students to come up with creative responses. Some possible responses are: refusal to make the changes, hiring less expensive faculty, offering distance or online courses, increasing class size, or entering into a cooperative arrangement with another university.

Did the nominal group technique generate more creative alternatives than those that you generated on your own?

In your opinion, is the alternative chosen by the class vote a ―better‖ solution than anything you thought of on your own? Explain your answer.

Students‘ opinions will vary, but most will probably recognize that the nominal groups technique aids creativity, allowing group members to build upon the best ideas and combine multiple ideas.

Give some suggestions about the types of organizational decisions that could be more effective if made by nominal groups. When should nominal groups not be used?

Answers should focus on the strengths of nominal groups—information sharing and creativity.

Nominal groups would not be effective for decisions that need to made very quickly, that are

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Management 12e by Ricky W. Griffin programmed or don‘t require group participation, where expert knowledge is unimportant, or where one or more powerful members may dominate the group discussion.

MANAGEMENT AT WORK The Not-So-smart Phone Company The closing case highlights the rise of smartphones. At the very beginning of mobile devices, BlackBerry was the go-to phone for any businessperson wanting to keep track of work email while away from the office. The company dismissed smartphones as a non-issue, assuming they knew better than consumers what kind of devices people wanted. Bad decision making led to financial losses and plunging market shares.

1.

Case Question 1: Once the iPhone and Androids had penetrated the market, RIM faced a serious challenge: It had two distinct groups of customers to which it had to market its products. What were those two groups, and why were their needs and wants incompatible? Explain how this situation put RIM in a state of uncertainty. What risks did it face in making decisions to respond to this situation?

The two distinct customer groups were business users and individual consumers. Businesses wanted a secure network with limited features while individual consumers wanted tons of features and the ability to share information with others at all times. RIM was in a state of uncertainty because they underestimated consumer‘s response to smartphones. They seemed to be aware of the alternatives but seemed to ignore the risks and consequences. The company chose business needs over consumer needs and felt their offerings were good enough for all consumers. The risks involved in the alternatives would lead to a change in their product. Without properly weighing the consequences of these risks, the company was moving forward blindly.

2.

Case Question 2: When RIM decided to incorporate personal apps into the BlackBerry, developers were required to use the company‘s Java-based operating system, created in the 1990‘s. In addition, they were required to submit apps for prior approval. Several apps – including Instagram and Tumblr – went elsewhere. Explain this problem as a problem in bounded rationality. Judging from what you know about RIM from the case, in what other ways would you say that RIM decision makers were hampered by bounded rationality?

Bounded rationality suggests that decision makers are limited by their values and unconscious reflexes, skills, and habits. They are limited by incomplete information and knowledge. While the company had made the decision to incorporate apps, they seriously limited their developers by requiring them to use a Java-based OS created in the 1990‘s. Lazaridis was an engineer who founded RIM in 1984. It seems he is still committed to the technology of the ‗90‘s and has not kept up on the newer technology so important to his company. His values tell him what was good enough then is good enough now. The reflexes and skills he acquired as he built his business are fine but he needs to keep learning and change with demand. His habit of thinking he knows better than the consumer may mean the death of his company.

3.

Case Question 3: Hersh Schefrin,* a pioneer in the behavioral aspects of financial decision making, studies how a specific set of psychological traps snare decision makers, causing them to make inferior decisions. [Two] of the most common are excessive optimism [and] overconfidence…People learn to be excessively optimistic and overconfident. This means that successful people over-estimate their past successes, which feeds these biases.

Judging from the details of the case, show how these two forms of ―bias‖ affected decision making at RIM. How might RIM‘s ―inferior decision‖ have been avoided if executives like Lazaridis and Balsillie had applied the steps in rational decision making?

Decision makers were optimistic that consumers would ―learn‖ what was good for them and what features they wanted on a phone. They were overconfident in how correct their decisions were and

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Chapter 8: Error! Unknown document property name. felt the consumer would ‗catch up with them‘. If Lazaridis and Balsillie had applied the steps in rational decision making, they may have avoided their mistake. The first step is recognizing and defining the decision situation. They recognized the decision but failed to define it accurately. If they had defined the situation instead of dismissing it as a ‗non-problem‘ they would not be trying to catch up to the current market leaders. If they used the rational decision making process, they would have identified alternatives, evaluated those alternatives, then chosen and implemented the best alternative. The mistakes happened at the very first step.

4.

Case Question 4: According to one industry observer,† the workplace is changing. The barrier between work and home has been eroded, and if people are going to have to be constantly connected, they at least want to use their own phones.

Companies have quickly come to love consumerization too: A recent study…found that executives like the way it keeps workers plugged in all day long. And since workers often end up paying for their own devices, it can also help businesses cut costs. What about you? Do you ever use your own phone for work-related activities? If so, what kinds of activities? Do you sometimes feel that your employer is taking advantage of the fact that you‘re ―plugged in all day long‖? Or do you feel that the tradeoff – at least you‘re allowed to use your own phone – is worth it? Do you sometimes take advantage of your employer – do you use your phone for personal business when you‘re at work?

Students answers will vary widely here. Some students may feel employers are taking advantage of the fact that they are ‗always available‘. Some companies expect employees to read emails even when not at work. * ―Psychological Traps Snare BlackBerry Decision Makers,‖ Forbes, November 7, 2013, www.forbes.com, on October 9, 2014. †

James Surowiecki, ―BlackBerry Season,‖ The New Yorker, February 13, 2012, www.newyorker.com, on October 8, 2014.

CHAPTER 9

Managing Start-Ups and New Ventures CHAPTER SUMMARY This chapter deals with entrepreneurship and new venture formation. The chapter begins by exploring the nature of start-ups and new ventures. The text then examines the role of start-ups and new ventures in the business world and discusses strategies for start-ups and new venture organizations. The chapter continues by describing the structure and performance of start-ups and new ventures.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Discuss the nature of entrepreneurship.

2.

Describe the role of entrepreneurship in society.

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3.

Understand the major issues involved in choosing strategies for small firms and the role of international management in entrepreneurship.

4.

Discuss the structural challenges unique to entrepreneurial firms.

5.

Understand the determinants of the performance of small firms.

MANAGEMENT IN ACTION Leaping to Construction Project Frog (which stands for Flexible Response to Ongoing Growth), founded in 2006, is a San Francisco-based builder of component structures designed for onsite assembly. Unlike current component manufacturers, Project Frog buildings are customizable. Project Frog uses ―smart manufacturing‖ when designing and manufacturing the building components. The result is a building requiring less construction, producing less waste and improving on energy efficiency standards.

Management Update: Goldman Sachs recognized Project Frog CEO Ann Hand as one of the most 100 Most Intriguing Entrepreneurs of 2014.

LECTURE OUTLINE I.

THE MEANING OF ENTREPRENEURSHIP A. B. C. D.

Entrepreneurship is the process of planning, organizing, and assuming the risk of a business venture.

An entrepreneur is someone who engages in entrepreneurship.

A small business is one that is privately owned by an individual or a small group of individuals; its sales and assets are not large enough to influence its environment.

A start-up or new venture is a relatively new small business.

Teaching Tip: The definition of ―small‖ depends on the industry. A small retail store may employ only a few workers, while a small nuclear power plant employs hundreds.

Teaching Tip: Point out a sample of small businesses around campus—convenience stores, dry cleaners, local restaurants, clothing shops, bookstores, and so forth.

Cross-Reference: In Chapter 3, we discussed how regulators are a key part of a firm‘s task environment. Though the purpose of the Small Business Administration is to assist small business, it also has regulatory implications as well.

II.

THE ROLE OF ENTREPRENEURS, START-UPS AND NEW VENTURES IN SOCIETY Some entrepreneurs have been very successful and have accumulated vast fortunes from their entrepreneurial efforts. Many more entrepreneurs, however, have lost a great deal of money.

Research suggests the majority of new businesses fail within the first few years after founding.

As Figure 9.1 shows, most U.S. businesses employ fewer than 100 people, and small firms employ most U.S. workers.

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Management 12e by Ricky W. Griffin The contribution of start-ups and new ventures can be measured in terms of its effects on key aspects of an economic system. In the United States, these aspects include job creation, innovation, and importance to big business.

A.

Job Creation 1. Start-ups and new ventures – especially in certain industries – are an important source of new jobs in the U.S. 2. Entrepreneurial companies of all sizes create jobs.

Discussion Starter: Ask if any of your students ever took a job with a new firm just as it was starting out. Ask them to recount their experiences.

B.

Innovation Small businesses create many new innovative products and services. Examples include the personal computer, air conditioning, and the instant photograph.

The Small Business Association (SBA) says start-ups and new ventures consistently supply over half of all ―innovations‖ introduced into the U.S. each year.

C.

Importance to Big Business Big businesses sell their products through small businesses and buy more of their inputs from small businesses than from other big businesses.

Cross-Reference: Since small businesses are frequent suppliers for bigger businesses, they are an important ingredient in the task environment, discussed in Chapter 3.

III. STRATEGY FOR START-UPS AND NEW VENTURES A.

Choosing an Industry Cross-Reference: Porter‘s five forces framework provides an effective model for assessing industry attractiveness. We discussed that framework in Chapter 3.

Small businesses can be successful in any industry segment. Small businesses are especially strong in certain industries, such as retailing and services, which have relatively low investment costs.

1.

2.

Service organizations are the fastest growing segment of small business enterprise.

Primarily because they require few resources, offer a high return on time invested, and appeal to the innovation typified by many new entrepreneurs.

Retailing businesses often focus on narrow market segments like golfers or college students. There are hundreds of different kinds of retailers.

Teaching Tip: Point out the large number of small service and retail businesses that likely exist around your campus.

3.

4.

5.

6.

7.

Construction is limited by location. Small, local construction firms are ideal.

Finance and insurance businesses are likely to be affiliates of or sell products provided by larger national firms.

Wholesale businesses buy products from large manufacturers and resell the products to retailers. Per sales volume, they need fewer employees than other industries.

Transportation jobs include local taxi and limousine companies, charter airplane services, tour operators, and maintenance employees for regional airlines.

Manufacturing more than any other industry, lends itself more to big businesses than smaller businesses due to the large financial investment required. Manufacturing costs fall as the number of units produced increases. This is knows as an economy of scale.

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Changing technology in an industry may create opportunities for small business. Small manufacturers may find success supplying larger manufacturers.

Teaching Tip: With the growing role of computers and other technology in the creation of new products and product ideas, the disadvantages of manufacturing for small businesses may become less significant. Use of technology can shift an industry‘s economies of scale, making it less expensive to produce products in small quantities.

B.

Emphasizing Distinctive Competencies New businesses also increase their chances of success if they can identify and emphasize their distinctive competencies.

1.

One way to succeed with a new business is to identify a niche in an established market. a)

A niche is a segment of a market not currently being exploited.

b)

An established market is one in which several large firms compete according to relatively well-defined criteria.

Extra Example: Many retailers sell women‘s attire but Eddie Bauer was the first retailer offering all of its women‘s products in tall sizes. They found an unexploited niche.

2.

Another way to succeed is to identify a new, emerging market. a) This may involve transferring a successful product to another market. b)

This may also occur when an entirely new market or industry is created.

Extra Example: Ann Taylor achieved success when she identified a new market for women‘s business attire that is professional and feminine at the same time.

3.

A new business may also be successful when it has first-mover advantage, that is, when it exploits an opportunity before any other firm does. Large organizations may identify new niches or markets at the same time as smaller organizations but are unable to move as quickly.

Extra Example: Dell Computer thrives due to first-mover advantage in direct marketing—selling online and shipping directly to consumers. Dell maintains its dominance in this segment of the industry because of its head start.

C.

Writing a Business Plan Another key ingredient to entrepreneurial success is the preparation of a strong business plan.

The business plan should include a discussion of goals, strategies and implementation, forecasts and financial statements, most importantly the cash budget.

Teaching Tip: The website www.bplans.com offers sample business plans. It is interesting to look at the variety of businesses that are the subject matter of these plans.

Interesting Quote: ―Whether the plan calls for fast growth or slow doesn‘t matter much.

When you do a business plan, you‘re forced to make your assumptions explicit and to challenge them.‖ (Raymond Boggs, economist; quoted in Fortune, May 2, 1994, p. 84.)

Group Exercise: Have small groups of students sketch the basic issues they would need to consider if they were going to start a specific type of new business.

D.

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Entrepreneurship and International Management

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Management 12e by Ricky W. Griffin Though many people associate international management with big business, many smaller companies are finding expansion and growth opportunities in foreign markets. Some companies open locations in foreign countries while others find opportunities through increased sales.

IV. STRUCTURE OF START-UPS AND NEW VENTURES A.

Starting the New Business 1. Buying an existing business allows the entrepreneur to examine the business‘s past history and thus to better understand what he or she is getting into.

2. Starting from scratch allows the entrepreneur to avoid inheriting the mistakes of the past owner. The risks are greater for those starting from scratch.

Teaching Tip: If possible, point out examples of local firms that have been started from scratch and examples in which a business has been sold to a new owner.

B.

Financing the New Business 1. Personal resources account for over two-thirds of all money invested in start-ups and new ventures and one-half of that invested in the purchase of existing businesses.

2. Strategic alliances are becoming a popular method, especially popular with dot.com companies who often subcontract many functions to traditional wholesalers or shippers 3. Traditional lenders include banks, independent investors, and government loans. Banks and investors require a formal business plan and there are often strict eligibility guidelines on government loans.

4. Venture capital companies are small groups of investors seeking to make profits on companies with rapid growth potential. They invest capital in return for stock.

5. Small-business investment companies (SBICs) are federally licensed to borrow money from the Small Business Administration (SBA) and invest in start-ups and new ventures.

6. SBA financial programs are federal loans for those who cannot get private financing on reasonable terms. The company must meet stringent requirements.

7. Crowdfunding emerged as a source of funding for start-ups and new ventures.

C.

Sources of Management Advice 1. Advisory boards provide experience, advice, and assistance.

2. The quality varies and the price may be high, but consultants bring an objective and trained outlook to problems and provide logical recommendations.

3. The Small Business Administration plays a role in helping new business owners improve their management skills.

The SBA provides advice from retired business people under its SCORE program. They also use volunteer consultants, college students, and university faculty to provide assistance. It also offers training programs and workshops through its Small Business Development Center.

Teaching Tip: It is often interesting to have a local speaker from the SBA, SCORE, or other program visit class and discuss various new business assistance programs.

4.

D.

Networking, or meeting regularly with other business people to share ideas and advice, is also popular. One example is joining the local chamber of commerce.

Franchising A franchising agreement is a contract between an entrepreneur (the franchisee) and a parent company (called the franchiser). The franchisee pays the franchiser for the use of its trademarks, products, formulas, and business plans.

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The franchiser provides managerial and financial help, marketing expertise, and a national image.

Franchising potentially reduces the entrepreneur‘s risks, but it also entails significant start-up costs, less control and profit potential. Though franchises minimize risk, they do not guarantee success. The entrepreneur may fail or the franchise itself may collapse.

Interesting Quote: ―Hamburgers are a wonderful means to an end, a great way to be on the front line of society, a great way to earn a good living.‖ (McDonald‘s franchisee, quoted in The Wall Street Journal, June 3, 1998, p. A1). Use this quote for a discussion as to whether hamburgers are a good investment in today‘s health conscious world!

Teaching Tip: Point out some local businesses, near campus, that are franchised.

Discussion Starter: The fastest-growing franchises in the U.S. are fast food companies, motels, convenience stores, and janitorial services. Why are these types of firms popular choices for franchising?

V.

THE PERFORMANCE OFSTART-UPS AND NEW VENTURES A.

Trends in Start-Ups and New Ventures 1. Emergence of e-commerce, through the Internet, has led to an increased ability for small firms to start a business and / or grow a national clientele.

2. Many individuals are opting out of the corporate rat race, and recent corporate layoffs add to the number of people considering entrepreneurship.

3. Woman- and minority-owned small businesses are experiencing high growth.

4. The failure rate is declining and the success rate is the best it has been in 50 years.

B.

Reasons for Failure 1. Managerial incompetence or inexperience results when entrepreneurs have little or no management experience or training.

2. Neglect is a threat, and some entrepreneurs don‘t realize how much time is involved in owning your own business.

3. Weak control systems can allow a firm to flounder without a clear sense of what needs improvement.

4. Insufficient capital means that there isn‘t enough reserve to sustain the firm through the expensive start-up period or subsequent lean times.

C.

Reasons for Success 1. Hard work, drive, and dedication on the part of the entrepreneur are all key to success.

Long hours and independent work are also required.

Teaching Tip: Stress for students that not everyone is cut out to be an entrepreneur.

Indeed, many people who try it end up going back to work for someone else.

Discussion Starter: Ask students if they have an interest in being an entrepreneur or if they intend to go to work for someone else.

2.

3.

4.

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Market demand for its products or services provided is imperative for a business to succeed.

Managerial competence on the part of the entrepreneur is important.

Luck plays at least a small part in every successful business.

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Management 12e by Ricky W. Griffin

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the similarities and differences between entrepreneurial firms and large firms in terms of their job creation and innovation.

Since 1990, entrepreneurial firms and large firms have both added new jobs to the economy. Large firms have eliminated jobs, but at the same time, they have acted as entrepreneurs in moving into new products and markets, creating new jobs. Both entrepreneurial and large firms are innovative and have developed new products.

2.

What characteristics make an industry attractive to entrepreneurs? Based on these characteristics, which industries are most attractive to entrepreneurs?

Many entrepreneurs are starting their businesses with limited resources, and therefore, attractive industries are those in which a small start-up investment is sufficient. Another attractive characteristic is an industry in which a few large firms dominate, because that typically creates market niches that entrepreneurs can successfully fill. Yet another attractive quality is the low economies of scale, highly specialized skills and customization required by some crafts and trades.

These trades are often uneconomical for large firms but can be profitable for small ones. Thus, services, retailing, and construction are popular choices for entrepreneurs, while manufacturing tends to be dominated by large firms.

3.

Describe recent trends in new business start-ups.

The Internet aids small businesses in reaching a wider market inexpensively, as well as creating opportunities for new types of firms such as web design firms. Workers opting to leave their jobs at large firms for self-employment is another important trend as is increased entrepreneurial opportunities for women and minorities. Small business failure rates have been declining recently, encouraging entrepreneurship.

4.

What are the different sources of advice for entrepreneurs? What type of information would an entrepreneur be likely to get from each source? What are the drawbacks or limitations for each source?

Entrepreneurs may get advice from advisory boards, management consultants, the SBA, and from networking with peers. Advice can cover a variety of topics from marketing to financing to human resources. The advice obtained from advisory boards is only as good as the members of the board.

The same holds true for management consultants who also may charge high fees. The SBA provides advice for free, but again, quality varies depending on the expertise of the volunteer advisors.

Networking can be one of the most effective sources of advice because the advice is practical and relevant.

Questions for Analysis 5.

Entrepreneurs and start-ups and new ventures play a variety of important roles in society. If these roles are so important, do you think that the government should do more to encourage the development of start-ups and new ventures? Why or why not?

This is an opinion question with no absolutely right or wrong answer. Instead, the quality of an answer depends on how well it is justified. At present, the government already has numerous programs in place to help new businesses. This chapter, for example, noted such programs as the SBA and SCORE. In addition, most state and local governments also have new business development programs. The real issue, then, is whether current programs are sufficient or if more are needed.

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6. Consider the four major reasons for new business failure. What actions can entrepreneurs take to minimize or avoid each cause of failure?

Incompetence or inexperience can be counteracted by business training and education as well as by experience working in that type of business. Neglect can be avoided by a more serious time commitment. Weak control systems are avoidable if owners pay closer attention to potential and developing problems. Insufficient capital or overly optimistic financial projections can be solved if entrepreneurs work with experts to determine a realistic budget and to obtain the necessary funds in advance.

7. The U.S. automotive industry is well established, with several large and many small competitors. Describe the unexploited niches in the U.S. auto industry and tell how entrepreneurs could offer products that fill those niches.

Students‘ answers will vary. They might point out that there are few automobiles for very modest prices, such as the $10,000 range. They might also note the sameness of the sedans, SUVs, and trucks that most Americans buy. There might be an opportunity for a completely different type of vehicle or for the revival of old favorites, such as the station wagon.

Questions for Application 8. Assume that you are opening a new business in your town. What are your financing options?

Which option or options are you likely to choose, and why?

Financing options include personal resources, strategic alliances, lenders such as banks and the federal government, venture capital, small business investment companies, and the SBA. Students‘ will vary in their preferences and their justification.

9. List five entrepreneur-owned businesses in your community. In which industry does each business compete? Based on the industry, how do you rate each business’s long-term chances for success? Explain your answers.

Students‘ will choose different companies, of course. They should correctly identify the industry.

Then, they should predict that firms in services and retailing will be successful while manufacturing firms will not. However, factors such as low economies of scale and the existence of unfilled market niches are more important in determining success than is choice of industry.

10. Using the information about managing start-ups and new ventures presented in this chapter, analyze whether you would like to work in a start-up or new venture—either as an employee or as a founder. Given your personality, background, and experience, does working in or starting a new business appeal to you? What are the reasons for your opinion?

This makes an excellent outside-of-class assignment. There will likely be a wide variety of answers.

(For a more detailed look at this question, see the Diagnostic Skills and the Interpersonal Skills exercises for this chapter. They are especially useful for students who are interested in exploring an entrepreneurial career.)

END OF CHAPTER EXERCISES Building Effective interpersonal Skills I.

Purpose This exercise helps students assess their networking skills to find out if these skills are well developed already or likely to be developed over time.

II.

Format

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Management 12e by Ricky W. Griffin This exercise is designed to be completed by individual students outside of class. It involves students responding to a 16-item questionnaire and adding up their score on these questions.

III. Follow-Up A. The scores range from 16 (ineffective networking) to 80 (effective networking).

Building Effective Conceptual Skills I.

Purpose This exercise encourages students to think through the factors that lead to start-up and new venture success and to apply those ideas to their situation.

II.

Format The conceptual skills exercise is a two-step activity with Step 1 done individually and Step 2 in groups. The entire exercise will take about 20 minutes.

III. Follow-Up A. Form a small group of four or five classmates and discuss your respective lists. Look for instances in which the same type of business appears either on (1) both of your lists or (2) on one of your lists and one of a classmate‘s lists. Also, look for cases in which the same business appears on more than one list with either similar or dissimilar prospects for success.

Differences in students‘ interests and knowledge of local market conditions will lead to different answers to this question.

B.

At this point, how important do you regard personal interest as a factor in small-business success?

Students might point out that without personal interest, entrepreneurs are unlikely to invest the significant amount of time and energy that a small business requires. However, personal interest alone isn‘t enough to create a viable enterprise.

C.

How important do you regard market potential as a factor in small-business success?

Market potential is critical to small business success. Without it, even the most dedicated entrepreneur will not succeed. However, personal interest creates energy and enthusiasm, which is also a necessary component of success. Students will probably agree that both personal interest and market potential are absolutely vital.

MANAGEMENT AT WORK Taxi Dancing around the Question of Regulation Uber is a ridesharing service introduced in San Francisco in 2009 and quickly expanded to 140 U.S. cities and 40 foreign countries. Customers ―e-hail‖ a ride through an app on their smartphone and a ride is there within minutes. The service is cheaper than a typical taxi and there is no cash involved as the charges come straight from the customer‘s credit card. The service has its detractors, including cab services and some dissatisfied customers.

Management Update: Add drivers to the list of possible Uber detractors. In September 2015, a California judge granted class-action status to an employee status lawsuit filed against the company. The suit is open to all Uber drivers in California. The lawsuit claims Uber misclassified its employees as contract workers. It alleges Uber treats drivers like employees without providing the requisite benefits. Uber plans to appeal the decision saying there really is no ―typical‖ driver, the key question at issue. If the suit is successful, it could mean the end of Uber.

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1.

Case Question 1: What are Uber‘s distinctive competencies – the aspects of the business of transporting passengers that it appears to perform better than its competitors? In what ways has Uber successfully emphasized its distinctive competencies?

Uber‘s distinctive competencies are its low costs, ease of use and cashless pay system. Uber keeps costs low by having few employees and using contracted drivers who get a portion of the ride payment but provide all other costs of use, upkeep and ownership of the actual vehicle. Uber passes the lower cost on to the customer who receives a ride for less than typical cab fare. Uber‘s ―e-hail‖ app appears easy to use and powerful enough to complete the process with only a few clicks from the customer. No cash needed as payment comes directly from customer‘s credit card. Uber successfully emphasized their distinctive competencies through identifying a new niche in an existing market and acting quickly to take advantage of the opportunity. Using contracted drivers not only keeps costs low but side-steps lengthy and costly regulations. Uber has effectively created its own niche. If the business plan holds up to scrutiny, and now lawsuits, Uber is in a good position to have a sustained competitive advantage due to its early entry in the market.

2.

Case Question 2: Uber operates specifically in the taxi and limousine industry, in which cars transport passengers according to various dispatch and fare systems. In a broader sense, however, it also participates in certain ―major industry groups‖ (see the chapter section on ―Choosing an Industry‖). What are the relevant ―industry groups‖? In what ways do the demands of competing within these groups overlap with or impact the demands of competing in the taxi and limousine industry? In particular, how might these demands influence Uber‘s entrepreneurial strategies?

The major industry groups are services and transportation. A new business offering services generally requires fewer resources and provides a higher return on time invested. The transportation industry is a bit different as it requires a heftier investment in vehicles and this industry has more regulations attached. Uber is seeking to get the best of both the services industry with a high rate of return while offering transportation services. Uber uses its business model of contracted drivers to bypass regulations and remove vehicle expenses from its budget line.

3.

Case Question 3: ―Innovation and regulation simply don‘t work together.‖ So says Larry Downes, the victim of the cab ride described at the outset of the case and formerly of the Northwestern University School of Law and the University of California-Berkeley‘s Haas School of Business.

Assuming that he‘s right, why is this so? Why is regulation often incompatible with innovation?

Why do we regulate most industries in the first place? In your opinion, what sort of tradeoffs should we seek when we try to balance the opposing advantages of regulation and innovation?

Answers will vary. Students should offer some comparison of the flexibility needed for innovation opposed to the strictness of regulations. If an innovation comes along making an industry better, it may not be ―allowed‖ under current regulations. Regulations are generally in place for the safety of workers and the general public. Answers to the final question will vary but one idea is an outlet for trying new innovations that reside outside the bounds of current regulations.

4.

Case Question 4: The case defines regulatory capture as the process whereby regulators and regulated industries eventually develop a mutual vested interest in maintaining the regulatory system. The regulator, as Downes puts it, ―becomes the industry‘s cheerleader, and regulations shift subtly from protecting the public interest to protecting the status quo.‖ Think of a couple of industries with which you do business. Does the process of regulatory capture appear to be at work in these industries? In what ways do you think the system of regulatory capture adversely affects the relationship between a given industry and its customers?

Student‘s answer will vary. There may be examples given of transportation companies such as taxis, or airlines. Other examples include the FDA and items from the grocery store. Regulatory

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Management 12e by Ricky W. Griffin capture adversely affects the relationship between a given industry and its customers due to suspicion and lack of trust.

CHAPTER 10

Basic Elements of Organizing The second basic management function, as introduced in Chapter 1, is THE ORGANIZING PROCESS. Part Four of the text is devoted to in-depth coverage of the various issues and concepts most relevant to organizing.

Part Four contains four chapters. Chapter 10 introduces the basic elements of organizing. Chapter 11 discusses organization design. Organization change and innovation are covered in Chapter 12. Finally, Chapter 13 deals with human resource management.

CHAPTER SUMMARY This chapter introduces the basic elements of organizing. Key topics covered in the chapter are designing jobs, grouping jobs via departmentalization, establishing reporting relationships, distributing authority, coordinating activities, and differentiating between positions.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Identify the basic elements of organizations.

2.

Describe the basic alternative approaches to designing jobs.

3.

Discuss the rationale and the most common bases for grouping jobs into departments.

4.

Describe the basic elements involved in establishing reporting relationships.

5.

Discuss how authority is distributed in organizations.

6.

Discuss the basic coordinating activities undertaken by organizations.

7.

Describe basic ways in which positions within an organization can be differentiated.

MANAGEMENT IN ACTION Who’s the Boss?

The opening case looks at Treehouse Island Inc., a company that produces courses in web development and programming and business education to teach students a range of technology-related skills. When Ryan Carson and Alan Johnson, the two founders, realized the unhappiness of first-line employees, they decided to cut back on management. They soon decided to cut all management. One of a manager‘s most important jobs is communicating so the company set up a new internal information tool called Canopy. The new system requires much more time to get any task accomplished, a major drawback.

Carson and Johnson are also unsure how the system will work when the number of employees increases.

Management Update: In April 2015, Tony Hsieh, CEO of Zappos, announced the company was moving toward a boss-free environment, no titles. Zappos is a successful business so experts will closely watch their stab at holacracy.

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LECTURE OUTLINE I.

THE ELEMENTS OF ORGANIZING Organizing is deciding how best to group organizational activities and resources.

Organization structure is the set of elements that can be used to configure an organization.

There are six basic building blocks managers use when constructing an organization: designing jobs, grouping jobs, establishing reporting relationships between jobs, distributing authority among jobs, coordinating activities among jobs, and differentiating among positions.

Teaching Tip: The building block analogy used in the text is a good way to introduce this material. Building blocks come in all manner of shapes and can be combined in innumerable ways to create things. Likewise, the elements of organizing can be configured in many different ways as well.

Group Exercise: You might ask student groups to sketch real or hypothetical organization charts. You can then use the boxes (jobs) and reporting relationships (lines) they generate to illustrate some of the elements of organizing introduced in this chapter.

II.

DESIGNING JOBS The first basic element of organization structure is job design.

Job design is the determination of an individual‘s work-related responsibilities.

The natural starting point for designing jobs is determining the level of desired specialization.

A.

Job Specialization Job specialization is the degree to which the overall task of the organization is broken down and divided into smaller component parts. It evolved from the concept of division of labor.

Mass-production capabilities stemming from job specialization techniques have had a profound impact throughout the world.

B.

Benefits and Limitations of Specialization 1. There are four benefits of specialization. a) Workers will become proficient at their task because it is small and simple. b) Transfer time between tasks decreases. c) The more narrowly defined the job, the easier it is to develop specialized equipment to assist with the job. d) Training costs should be relatively low.

2.

Drawbacks to job specialization. a) The main problem with specialization is that the worker can become bored and dissatisfied. This can lead to higher absenteeism and lower quality of work. b) The anticipated benefits of specialization do not always occur. c) Managers should avoid extreme specialization.

Extra Example: Another good example to illustrate how job specialization evolves is Sam Walton. When Walton opened the first Wal-Mart store, he planned the store himself, ordered all the merchandise, developed the newspaper ads, and even operated one of the cash registers. Of course, as his business grew these jobs were later assigned to others.

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Management 12e by Ricky W. Griffin

Discussion Starter: Ask students if they have experienced highly specialized jobs.

Discussion Starter: Ask students to speculate on how managers and organizations should optimize job specialization in order to balance efficiency and worker satisfaction.

C.

Alternatives to Specialization Because of the drawbacks noted, many firms have sought alternative approaches to job design.

1.

Job rotation involves systematically moving employees from one job to another.

This alternative has not been very successful because the jobs that lend themselves to rotation tend to be relatively standard and routine. Worker satisfaction quickly wanes.

Job rotation can increase flexibility and lower costs.

Management Update: Many companies are using job rotation today for training. For example, Southwest Airlines uses job rotation quite effectively, shifting employees across jobs in different departments and different functions.

Global Connection: At General Electric‘s plant in Puerto Rico, workers rotate to new jobs every six months. They also get pay raises for each new job they master.

2.

Job enlargement increases the total number of tasks workers perform.

There are some positive consequences but training costs usually increase, unions argue that pay should increase as tasks increase, and in many cases the work remains boring and routine even after job enlargement.

3.

Job enrichment involves increasing both the number of tasks a worker does and the control the worker has over the job.

Increasing an employee‘s sense of responsibility requires managers remove some controls from the job, delegate more authority, and structure the work in complete units.

Before implementing, work systems need analyzed, which seldom happens. In addition, managers rarely ask for employee preferences when enriching jobs.

Cross-Reference: Job enrichment is based on the two-factor theory of motivation developed by Frederick Herzberg. We discuss the two-factor theory in Chapter 15.

4.

The job characteristics approach suggests that jobs should be diagnosed and improved along five core dimensions, taking into account both the work system and employee preferences. a) Skill variety, the number of things a person does in a job. b) Task identity, the extent to which the worker does a complete or identifiable portion of the total job. c) Task significance, the perceived importance of the task. d) Autonomy, the degree of control the worker has over how the work is performed. e) Feedback, the extent to which the worker knows how well the job is being performed.

Extra Example: A useful way to illustrate variations on the core job dimensions is by contrasting the jobs of airline pilot and airline ticket agent. The agent does one basic thing (process tickets), while the pilot does several (preflight checks, taking off, flying, landing, etc.). Similar distinctions can be drawn for each of the other dimensions.

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High ratings on these dimensions presumably lead to high motivation, high-quality performance, high satisfaction, and low absenteeism and turnover.

A concept called growth-need strength presumably affects how the model works for different people. People indicative of high growth-need have a strong desire to grow, develop, and expand their capabilities and expected to respond strongly to this alternative. People with low growth-need are expected not to respond as strongly.

Group Exercise: Have small groups of students select a job they observe regularly (i.e., retail clerk, fast-food worker). Ask them to describe how each of the five core job dimensions exist now and how the job might be changed to improve the core dimensions.

5.

Work teams are another alternative to specialization that allows an entire group to design the work system it will use to perform an interrelated set of tasks.

Cross-Reference: Work teams are discussed more fully in Chapter 18.

III. GROUPING JOBS: DEPARTMENTALIZATION The second building block of organization structure is the grouping of jobs according to some logical arrangement.

Departmentalization is the grouping of jobs according to some logical arrangement.

A.

Rationale for Departmentalization The rationale for departmentalization is linked to size. As the organization grows, it is no longer possible for one owner-manager to oversee all of the workers. New managerial positions oversee workers grouped according to some plan.

B.

Common Bases for Departmentalization Teaching Tip: Using Figure 10.2, stress for students that most organizations use multiple bases of departmentalization in different areas and/or at different levels.

1.

Functional departmentalization groups jobs involving the same or similar activities.

Most common in smaller organization, has three primary advantages. a) Each department can be staffed by experts in that functional area. b) Supervision is facilitated because an individual manager needs to be familiar with only a relatively narrow set of skills. c) Coordinating activities inside each department is easier.

As an organization grows, several disadvantages emerge. a) Decision making tends to become slower and more bureaucratic. b) Employees may concentrate too narrowly on their own unit, losing sight of the total organizational system. c) Accountability and performance become increasingly difficult to monitor.

Interesting Quote: ―One of the beauties of the vertical, functional organization is that who you report to and who‘s the boss is very, very clear.‖ (Douglas Lennick, American Express executive, Fortune, April 3, 1995, 92.).

2.

Product departmentalization is grouping activities around products or product groups.

Advantages a) Integrated and coordinated activities across products and product lines. b) Enhances speed and effectiveness of decision making.

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Management 12e by Ricky W. Griffin c) Product performance is easily and objectively measures, thereby improving accountability of departments.

Disadvantages a) Managers may focus on their own product or product group, ignoring the rest of the organization. b) Each department needs its own functional specialists, increasing administrative costs.

Teaching Tip: Identify local organizations that use product departmentalization. (Many retail outlets use this approach and serve as good examples.)

Global Connection: Few Japanese companies ever use functional departmentalization.

Instead, most Japanese companies use product- or customer-based departmentalization.

3.

Customer departmentalization structures the organization‘s activities so as to respond to and interact with specific customers and customer groups.

The basic advantage is the ability to use skilled specialists to deal with unique customers or customer groups. However, a fairly large administrative staff is required to integrate the activities of the various departments.

4.

Location departmentalization groups jobs on the basis of defined geographic sites or areas.

The primary advantage is it enables the organization to respond easily to unique customer and environmental characteristics in the various regions. On the negative side, a larger administrative staff may be required to keep track of units in scattered locations.

Teaching Tip: If possible, identify for your students examples of local organizations that use customer and location bases of departmentalization.

5.

Other forms of departmentalization, such as time, can be used to group activities.

Airlines use this type of structuring. Sequence also can be used to structure an organization. For example, insurance claim divisions frequently are organized by policy number sequence.

Group Exercise: Have groups of students search for examples of different forms of departmentalization in your college or university.

6.

Other considerations include two final points about job grouping. a) Common synonyms for departments: divisions, units, sections, or bureaus. b) Almost any organization is likely to employ multiple bases of departmentalization, depending on level. c) The role of social media in departmentalization is beginning to impact departmentalization.

IV. ESTABLISHING REPORTING RELATIONSHIPS The third basic element of organizing is the establishment of reporting relationships among positions.

A.

Chain of Command 1. The chain of command is a clear and distinct line of authority among positions in the organization. Comprised of two components: unity of command and the scalar principle.

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Teaching Tip: Trace for students the chain of command in your college or university.

Discussion Starter: Discuss advantages and disadvantages of a clear chain of command.

2.

3.

B.

Unity of command suggests that each person within an organization should have a clear reporting relationship to one and only one boss.

The scalar principle suggests there must be a clear and unbroken line of authority extending from the lowest to the highest position in the organization.

Narrow Versus Wide Spans Span of management or span of control is the number of people who report to a particular manager.

Managers and researchers seek to determine the optimal span of management.

One early writer, A. V. Graicunas, quantified span of management issues. He noted that a manager must deal with three kinds of interactions with and among subordinates: 1. Direct – manager‘s one-to-one relationship with each subordinate.

2. Cross – relationship among the subordinates themselves.

3. Group – relationships between groups of subordinates.

The number of possible interactions can be determined by the following formula: I=N(2N/2 + N – 1) I is the total number of interactions and N is the number of subordinates.

The important point is each additional subordinate adds more complexity than the previous one. Going from nine to ten subordinates is very different from going from three to four.

Another early writer, Ralph C. Davis, described two kinds of spans: an operative span (could approach 30 subordinates) for lower-level managers and an executive span for middle and top managers (should be limited to between three and nine).

Lyndall F. Urwick and General Ian Hamilton both concluded the executive span should never exceed six subordinates.

Group Exercise: Have students research the different spans of management for different administrators in your college or university.

Teaching Tip: Have students use the formula shown in the text to calculate the effects of different spans of management, say for spans of four, eight, and ten subordinates.

C.

Tall Versus Flat Organizations Tall organizations have more layers of management than do flat organizations.

Many businesses today have adopted a flatter organization by widening spans of management.

This may lead to improved employee morale and productivity as well as increased managerial responsibility. Some companies are adapting the flat structure to improve communication and flexibility.

Teaching Tip: Use Figure 10.3 to illustrate tall versus flat organizations.

Extra Example: An example of a firm that has always used a flat structure is Toyota.

Have students compare the number of layers in Toyota and its rival, General Motors.

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Management 12e by Ricky W. Griffin Interesting Quote: ―In a big organization each layer slows down the process. By delayering you are giving people the power to change.‖ (Serge Huot, GE Executive, Fortune, April 3, 1995, 96.)

D.

Determining the Appropriate Span There are at least eight factors that influence the determination of the appropriate span.

Teaching Tip: Table 10.1 summarizes the eight factors influencing span of management.

1.

2.

3.

4.

5.

6.

7.

8.

Competence of supervisor and subordinates (greater equals wider) Physical dispersion of subordinates (greater equals narrower) Extent of nonsupervisory work in manager‘s job (more equals narrower) Degree of required interaction (more equals narrower) Extent of standardized procedures (more equals wider) Similarity of tasks being supervised (more similar equals wider) Frequency of new problems (higher equals narrower) Preferences of supervisor and subordinate

Interesting Quote: ―Remember the theory that a manager should have no more than six or seven direct reports? I say the right number is closer to ten or fifteen. …With ten or fifteen reports, a leader can focus only on the big important issues, not on minutiae.‖ (Jack Welch, CEO of General Electric, Harvard Business Review, September–October 1989, 114.)

Global Connection: Many Chinese managers today are still concerned with trying to identify the ―ideal‖ span of management. U.S. consultants report that when they visit Chinese businesses, this is one of the most frequently asked questions.

V.

DISTRIBUTING AUTHORITY Another important building block in structuring organizations is the distribution of authority among positions.

Authority is power that has been legitimized by the organization.

A.

The Delegation Process Delegation is the process by which managers assign work to subordinates.

1.

2.

3.

The primary reason for delegation is to allow the manager to get more work done. Also, the employee may have more expertise than the manager, or the manager may want to challenge and develop the employee‘s skills.

The delegation process involves three steps: (1) the manager assigns responsibility or tasks, (2) gives authority needed to do the job, and (3) establishes accountability.

Delegation may be problematic if managers are unwilling to delegate, are too unorganized to delegate or do not trust their employees enough to delegate. Also, subordinates may be reluctant to accept delegation.

Teaching Tip: Relate delegation back to job specialization. As managers find it useful to create new specialized jobs to perform various functions, they similarly may find it useful and necessary to delegate authority to people performing those jobs.

Discussion Starter: Ask students if they have ever worked for a boss who did not delegate properly. Explore whether the problem was too little or too much delegation.

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B.

Decentralization and Centralization 1. Decentralization is the process of systematically delegating power and authority throughout the organization to middle and lower-level managers. Decentralization is one end of a continuum, anchored at the other end by centralization.

2. Centralization is the process of systematically retaining power and authority in the hands of higher-level managers.

What factors determine an organization‘s position on the decentralization-centralization continuum?

One common determinant is the organization‘s external environment. Complexity and uncertainty leads the organization to decentralize. Another factor is the history of the organization. Firms tend to do what they have done in the past. A third factor is the costlier and riskier the decision, the more pressure to centralize. Organizations consider the abilities of lower-level managers. If lower-level managers do not have the ability to make high-quality decisions, they may centralize decisions.

Teaching Tip: Point out the relationship between decentralization and flat organizations.

Specifically, as organizations become flatter, they must also become more decentralized.

VI. COORDINATING ACTIVITIES A fifth major element of organizing is coordination. Job specialization and departmentalization break jobs down into small units and combine them into departments. Coordination keeps the departmental activities focused on the organizational goals.

Coordination is the process of linking the activities of the various departments in the organization.

Global Connection: Brazilian firms are traditionally managed in a highly centralized manner. Guards often patrol factory floors, employee trips to the bathrooms are timed, and employees are frequently searched when they leave work.

A.

The Need for Coordination The primary reason for coordination is that departments and work groups need information and resources from each other to do their jobs. This interdependence comes in three forms: pooled, sequential, and reciprocal.

1.

2.

3.

Pooled interdependence occurs when units operate with little interaction; their output is simply pooled. This is the lowest level of interdependence.

In sequential interdependence, the output of one unit becomes the input for another in a sequential fashion. This creates a moderate level of interdependence, usually one way.

Reciprocal interdependence exists when activities flow both ways between units.

Extra Example: Note that different courses have different levels of interdependence. A biology course and a philosophy course may be unrelated other than contributing to overall student education (pooled interdependence), whereas Statistics I may feed directly into Statistics II (sequential interdependence).

B.

Structural Coordination Techniques 1. Organizations that use the managerial hierarchy to achieve coordination place one manager in charge of interdependent departments or units.

Teaching Tip: Note that the hierarchy is most effective as a coordination technique when the organization is relatively tall and centralized.

2.

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Rules and procedures coordinate routine activities. Not useful for complex problems.

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Management 12e by Ricky W. Griffin 3.

4.

5.

Managers in liaison roles coordinate interdependent units by acting as a common point of contact in order to facilitate the flow of information between units.

Task forces work well when interdependence is complex, involving several units.

Individuals from each unit who has special information form a task force to solve a specific problem and then go back to their original units.

Integrating departments are a more permanent version of a task force. There are permanent members as well as temporary members.

In general, the greater the degree of interdependence, the more attention the organization must devote to coordination.

Teaching Tip: Liaison roles, task forces, and integrating departments are more likely to be used for coordination in organizations that are relatively flat and decentralized.

C.

Electronic Coordination Technology, especially the Internet, email, handheld devices, and networked computers make coordination easier.

Discussion Starter: Ask students who have jobs how their organization coordinates the work of different employees.

VII. DIFFERENTIATING BETWEEN POSITIONS A.

Differences Between Line and Staff.

The last building block of organization structure is differentiating between line and staff positions.

A line position is in the direct chain of command that is responsible for the achievement of an organization‘s goals.

A staff position provides expertise, advice, and support for line positions.

Differences between Line and Staff 1. Purpose differs. Line managers work toward organizational goals whereas staff managers advise and assist.

2. Authority differs. Line authority is formal or legitimate authority whereas staff authority is less concrete and may take many forms. Advise authority means the line manager can choose whether to seek or avoid input from staff. Compulsory advice means the line manager must consider the advice but can choose to heed it or ignore it. Functional authority is the most important form. This is formal or legitimate authority over activities related to the staff member‘s specialty.

Teaching Tip: Provide some local examples of line and staff organizational positions.

B.

Administrative Intensity Administrative intensity is the degree to which managerial positions are concentrated in staff positions.

High administrative intensity is an organization with many staff positions relative to the number of line positions. Low administrative intensity reflects more line positions.

Discussion Starter: The text notes that many organizations have reduced the number of staff members they employ. Ask students if they believe that this trend can go too far.

Specifically, is it imaginable that an organization can function with no staff employees?

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END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the five alternatives to job specialization. What is the advantage of each, as compared to specialization?

Job rotation occurs when employees move systematically from one job to the next. This offers workers some variety in their tasks. Job enlargement involves increasing the total number of tasks, again giving workers some additional variety in the jobs. Job enrichment increases both the number of tasks and the worker‘s control over their own work. This tends to increase variety and the worker‘s need for achievement and growth. The job characteristics approach improves several aspects of job design in an effort to increase meaningfulness, responsibility, and control. Work teams provide an alternative to job specialization, and they allow the group to design and assign tasks. Work teams increase job variety and autonomy.

2.

What is meant by unity of command? By the scalar principle? Can an organization have one without the other? Explain.

Unity of command is an organization design principle that states that every worker should report to exactly one superior. The scalar principle states that there must be a clear and unbroken chain of authority from every worker to the top manager in the firm. It is possible to have one without the other. For example, a firm may use a matrix design in which the scalar principle holds but the unity of command principle is violated because each worker reports to two superiors.

3.

Describe the organizational structure that results from each of the different bases of departmentalization. What implications does each of these structures have with regard to the distribution of authority within the organization?

Functional departmentalization results in an organization in which workers who perform similar tasks are grouped together. In this type of organization, authority is given to leaders who are experts in each of the necessary functions. Product departmentalization results in groupings of employees who all work on the same products. Product experts become leaders. Customer departmentalization results in groupings of employees who all work with the same customer groups. Customer experts become leaders. Under location departmentalization, employees are grouped based on their geographic site. Authority resides in a leader who supervises all the work done at one site.

4.

Explain the differences between line and staff positions. What are the advantages and disadvantages of high versus low administrative intensity?

Line positions are filled by workers and managers who are in the direct chain of command related to the achievement of the organization‘s goals. Staff workers and managers provide support and advice to those in line positions. If an organization has many staff positions relative to the number of line positions, the administrative intensity is high. When administrative intensity is high, costs tend to be high and production is inefficient. Most firms prefer low administrative intensity whenever possible to reduce costs.

Questions for Analysis 5.

Some people have claimed that the increasing technological sophistication required by many of today’s corporations has led to a return to job specialization. In your opinion, what would be the consequences of a sharp increase in job specialization? Consider both positive and negative outcomes in your answer.

Many jobs devoted to information technology require specialization of skills and knowledge—for example, computer programmers, systems engineers, and web site designers. Positive outcomes of

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Management 12e by Ricky W. Griffin specialization include efficiency, the development of specialized expertise, and ease in training and replacing workers. Disadvantages include worker boredom, lack of creativity, and difficulty in coordinating the work of many diverse specialists.

6.

Try to develop a different way to departmentalize your college or university, a local fast food restaurant, a manufacturing firm, or some other organization. What might be the advantages of your form of organization?

Responses will vary. One example follows: ―Our business department has two units—the accounting unit and a unit for other subjects. This can be improved by merging accounting with finance to offer a single accounting and finance degree. The other unit can offer a degree that combines marketing and management. Finance students already take accounting courses, while accountants should learn about finance. Likewise, marketing can learn from management and vice versa.‖

7. Consider the list of jobs below. In your opinion, what is the appropriate span of management for each? Describe the factors you considered in reaching your conclusion.   

A physician practices medicine in a privately owned clinic, while also supervising a number of professional nurses and office staff.

An owner-manager of an auto body shop deals with customers, directs several experienced mechanics and trains and oversees the work of some unskilled laborers.

A manager in an international advertising agency directs a team of professionals who are located in offices around the world.

Students‘ will give various answers, but here is an example of the factors they should consider. ―For the physician, the span can be relatively wide because workers and managers are experts, they work in the one physical location, many procedures can be standardized, the tasks are similar, and the problems are not usually new. On the other hand, the physician must perform a lot of nonsupervisory work and must interact with workers constantly. In addition, the clerical workers may require more oversight than the nurses due to professional training and expertise.‖

Questions for Application 8. Consider a job you have held. (Or, if you have not held a job, interview a worker.) Using the job characteristics approach, assess that job’s core dimensions. Then describe how the core dimensions led to critical psychological states and, ultimately, to personal and work outcomes.

Clearly, students‘ answers will vary. The students should correctly identify the core dimensions, and then they should accurately describe the process by which dimensions lead to psychological states and then to outcomes.

9. Use the Internet to locate organization charts for five different organizations. (Or use data from the Internet to draw the organization charts yourself.) Look for similarities and differences among them and try to account for what you find.

Many organizations do not publish their organization charts, but often, a look at the senior management team can give significant clues to the organization structure. For example, if the top mangers hold titles like Vice President of North American Operations then one can assume that the firm is using location departmentalization. Students will note similarities in the makeup of the structures such as a member of the top management team to represent each of the departments.

Differences will primarily be related to the bases of departmentalization and to different spans of control.

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10. Contact two very different local organizations (retailing firm, manufacturing firm, church, civic club, and so on) and interview top managers to develop organization charts for each organization. How do you account for the similarities and differences between them?

Interesting similarities should become evident among the civic organizations and the retail store.

Service orientation will differentiate these organizations from manufacturing firms. The main different in the latter case may be in the production function. If one of the students chooses a restaurant, which may be considered a service, discuss the production function. Likewise, if there is an assembly plant that does not actually manufacture component parts, discuss how it differs from a restaurant. There will be many avenues to explore in the different types of organizations.

END OF CHAPTER EXERCISES Building Effective Conceptual Skills I.

Purpose This exercise develops students‘ conceptual skills through an investigation of span of control.

II.

Format The exercise must be done outside of class and can be effectively completed by an individual or by a small group of students. Answers to the follow-up questions should be written outside of class.

The time required will vary, depending on how long each interview lasts. If you want to shorten the exercise, reduce the number of workers to be surveyed.

III. Follow-Up A. First, survey ten workers and managers about the span of management in their respective workplaces.

B. Now, choose one of these individuals for further investigation. Interview this person to get a better idea about the type of work that he or she does, the amount of required interaction with supervisors, the skill levels expected of workers, and other factors that may enter into the determination of optimal span of management. (See Table 10.1 for guidance.)

C. Given the information that you gathered in performing task 2, does the span of management in the workplace make sense? Why or why not?

Students will have varying answers, depending on what they learn in their interviews. In order to answer Question 3, students should refer to the section of text entitled ―Determining the Appropriate Span.‖ D.

If the span of management seems to be appropriate, what are some of the likely outcomes that the organization can expect? What are some likely outcomes if it seems inappropriate?

Appropriate spans of management will help to ensure adequate but not overbearing supervision, which should increase worker satisfaction and job performance, while keeping costs to a minimum. Firms that have too narrow of a span will tend to have dissatisfied workers, lower job performance, and overly high costs. Firms that have too broad of a span will have lower job performance, including a lot of worker errors.

Building Effective Diagnostic Skills I.

Purpose This exercise is designed to help students develop their diagnostic skills through the analysis of a very real problem that should also be relevant and interesting to them.

II.

Format This diagnostic skills exercise can be done by individual students or students working together in groups. The estimated time for completion of the exercise is about 20 minutes.

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Management 12e by Ricky W. Griffin III. Follow-Up A. For Scenario A, list the major barriers to decentralization that you foresee.

B. For Scenario B, list the major barriers to centralization that you foresee.

There will be some variation in answers to Questions 1 and 2, but students should mention items such as resistance to change, changing perceptions of risk, communication barriers, and power conflicts.

C.

In your opinion, which scenario would be easier to implement in reality? In other words, is it probably easier to move from centralization to decentralization or vice versa? Whatever your opinion in the matter, be ready to explain it.

Students will probably recognize that the move from centralization to decentralization reduces power for the fewest people, the top managers. At the same time, the move empowers many people within the organization who have not had decision-making authority in the past. This will be a popular move for most employees. In contrast, the change from decentralization to centralization will reduce power for most employees and therefore is likely to meet more resistance.

D.

Given a choice of starting your career in a firm that‘s either highly centralized or high decentralized, which would you prefer? Why? Students‘ answers will vary, depending somewhat on their self-confidence and risk-taking propensity. Some students will prefer the relative safety of a centralized organization, which will shield new, young employees from the risks inherent in decision making. Others will prefer the decentralized organization, which will give new employees more decision-making power.

MANAGEMENT AT WORK From Pyramid Schemes to Mutual Fun This case outlines the organizational structure found at Rite-Solutions who builds advanced software for the military as well as consumer-gaming platforms for casinos. The owners wanted to scrap the pyramid and rethink the company as a community. The company has a stock-market type game called ―Mutual Fun‖ with the aim of making people feel relevant to the success of the business. So far the game has generated more than 50 innovative product and process ideas.

Management Update: Rite-Solutions was a 2015 finalist for the 10th annual Bersin by Deloitte WhatWorks Award program recognizing innovation and excellence in critical areas of human resources.

1.

Case Question 1: Obviously, Jim Lavoie and Joe Marino have little confidence in the chain of command principle as a means of fostering success in today‘s business world. Explain why, referring to shortcomings in the concepts of unity of command and the scalar principle. How would Lavoie and Marino respond to the criticism that, under their system, ―the buck doesn‘t stop anywhere in particular‖?

Lavoie says in the text that he believes the chain of command is a ‗relic‘ designed to control information flow. Lavoie understands the importance of innovation to organizational survival, especially now as the pace of innovation increases. Lavoie and Marino think reporting to one boss (unity of command) and the scalar principle (a clear chain of command) hinder innovation, as there are more possibilities of someone dismissing an idea along the way. Lavoie and Marino likely feel the ‗buck‘ stops at the company itself, the community of workers comprising Rite-Solutions.

2.

Case Question 2: Says Jim Lavoie: ―Being acknowledged as part of an organization‘s future is all it takes for an employee to grow deeper roots in it.‖ First of all, explain what Lavoie means. Then consider the following questions: Do you basically agree or disagree with Lavoie? Do you think

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Chapter 11: Error! Unknown document property name. that it‘s important to ―grow roots‖ in an organization that you work for? What might it take for you to feel that you‘re ―part of an organization‘s future‖ – that it‘s worth it to sink ―deeper roots‖? What other factors might be important to you in feeling that you‘re something more than a mere cog in some organizational machine?

Possibly Lavoie means that if the employee has a personal interest in the company, they are likely to stay and give the company their best efforts. Students may agree or disagree with Lavoie and will have different opinions on ―growing roots‖.

3.

Case Question 3: According to Lavoie, Mutual Fun is Rite-Solutions‘ ―Innovation Engine‖ (IE).

Its function, he says, is twofold: (1) It generates the good ideas that ―fuel a Web 2.0 environment,‖ and (2) it ―engages the Y Generation to strive for the betterment of the organization.‖ What is a Web 2.0 environment? What is the Y Generation? Do you work, or are you likely to be working, in a Web 2.0 environment? What do you think you need to learn in order to succeed in such an environment? Are you a member of the Y Generation? What values do you have that reflect Y Generation values?

Student responses will vary but there should be some sense of the rapid expanse and use of technology in today‘s work environment. The Y Generation is comprised of individuals born between the 1980‘s and the year 2000. Most students will work in a Web 2.0 environment as this work environment is common today. Student‘s thoughts on the skills they will need varies. Most students will be part of the Y Generation and they may mention values such as believing there is more business success than profit. They want on-the-spot recognition and want to feel personally responsible for making the world a better place and they tend to only stay at an organization for two years.

4.

According to one researcher on the role of gamification in business,* the difference between a product created in a factory and one that is crowdsourced is that in the former case, coordination is supplied by managers. In the latter case, it is provided by a structure that emerges spontaneously through the actions of the crowd. What about you? Are you more comfortable working with other people when the requirements of the work are handed down by someone in ―authority‖ or more comfortable when they ―emerge spontaneously‖ from the interactions of a group? Under which circumstances are you more ―creative‖? Has your experience with social media influenced your attitude toward game playing as a way of connecting or even collaborating with other people?

Student answers will vary widely for all of these questions.

*Neil B. Niman, The Gamification of Higher Education: Developing a Game-Based Business Strategy in a Disrupted Marketplace (Palgrave Macmillan, 2014), pp. 58-59.

CHAPTER 11

Managing Organization Design CHAPTER SUMMARY This chapter deals with organization design. After introducing students to the nature of organization design, it covers first universal models of organization design and then situational factors of organization design. The linkages between strategy and organization design are then explored. Basic forms of organization design are next introduced and discussed. Finally, the chapter concludes with a discussion of emerging issues in organization design.

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Management 12e by Ricky W. Griffin

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the basic nature of organization design.

2.

Identify and explain two basic universal perspectives on organization design.

3.

Identify and explain key situational influences on organization design.

4.

Discuss how an organization‘s strategy and its design are interrelated.

5.

Describe the basic forms of organization design.

6.

Describe emerging issues in organization design.

MANAGEMENT IN ACTION The First Axiom of New Law The opening case discusses Axiom, an alternative legal service providing commercial contract work, intellectual property, compliance, and mergers and acquisitions. Axiom‘s structure is unlike the usual large law firm, instead relying on ‗supertemp‘ lawyers. The company assembles teams of well-trained lawyers designed to meet each client‘s particular needs. With an hourly rate of roughly one-half that charged by traditional law firms, the company experienced 1000%-plus annual growth rate over a period of three years.

Management Update: In September 2015, Axiom announced the launch of Axiom Accelerator, a technology-powered contracting platform. This represents the first and only contracting offering to combine self-service technology with a concierge capability proving end-users with access to trained contract negotiators.

LECTURE OUTLINE I.

THE NATURE OF ORGANIZATION DESIGN Organization design is the overall set of structural elements and the relationships among those elements used to manage the total organization.

Cross-Reference: Note for your students that Chapter 10 was concerned with identifying and discussing the various elements of organizing. This chapter focuses on how to put the various elements together to create an overall organization.

While studying this chapter, keep in mind two important points: 1. Organizations are not designed and then left intact; most change continuously. (The concept is change is discussed in the next chapter.)

2. Organization design for larger organizations is extremely complex, no description can ever be a full and complete explanation.

II.

UNIVERSAL PERSPECTIVES ON ORGANIZATION DESIGN A.

Bureaucratic Model A bureaucracy is a model of organization based on a legitimate and formal system of authority. Weber felt bureaucracy was ―the one best way‖ to do things and delineated five basic characteristics of an ideal bureaucracy.

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1.

2.

Distinct division of labor, each position filled by an expert.

Consistent rules ensuring task performance is uniform.

Discussion Starter: Ask your students to identify examples of bureaucratic rule and red tape they have recently encountered.

Teaching Tip: Point out that rules and regulations are sometimes necessary to ensure equitable treatment. For example, explain that there needs to be some logical system to determine who can register for classes at your school, who can file degree plans, who can buy athletic tickets, who can park, and so forth. This system, in turn, must be codified into rules and regulations.

3.

4.

5.

A hierarchy of positions creating a chain of command from top to bottom.

Managers remain impersonal and maintain appropriate social distance from subordinates.

Employment and advancement based on technical expertise; no arbitrary dismissal.

Group Exercise: Have small groups of your students develop a plan for making an organization less bureaucratic.

Global Connection: The bureaucratic model is still very prevalent in China. Many managers there still believe in the importance of hierarchy, rules, regulations, and standard operating procedures.

Strengths of the bureaucratic model: 1. Several elements often improve efficiency.

2. Helps prevent favoritism.

3. Makes procedures and practices clear to everyone.

However, there are disadvantages: 1. Results in inflexibility and rigidity.

2. Making exceptions or changing rules is often difficult.

3. Often results in neglect of human and social processes within the organization.

B.

Behavioral Model The behavioral model is a model of organization design consistent with the human relations movement, stressing attention to developing work groups and concern with interpersonal processes. Developed by Rensis Likert.

The behavioral model is based on eight key processes: leadership, motivation, communication, interactions, decision making, goal setting, control, and performance goals.

Likert believed any organization could be measured and placed along a continuum associated with each of these dimensions.

Likert used the basic bureaucratic form of organization to anchor one end of the continuum, which he called a System 1 design. Likert suggested that there were four systems with a System 4 design anchoring the opposite end of the continuum, based on the behavioral model.

Teaching Tip: Note the distinctions between System 1 and System 4 detailed in Table 11.1. Point out similarities between System 1 and the bureaucratic model discussed earlier.

Cross-Reference: Note that the emergence of the behavioral model of organization design paralleled the emergence of the human relations school of management thought.

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Management 12e by Ricky W. Griffin Extra Example: In many ways, the transformations many organizations are currently undergoing toward a flatter, more horizontal form of organization design mirror the transition from System 1 to System 4. Ford Motor‘s Customer Service Division, for example, recently made this transition.

The behavioral approach‘s major strength is its emphasis on human behavior by stressing the value of an organization‘s employees. However, the approach still argues there is one best way to design an organization – as a System 4. In reality, this is not the case.

The next section identifies factors that determine the best organization design for a particular situation.

III. SITUATIONAL INFLUENCES ON ORGANIZATION DESIGN The situational view of organization design is based on the assumption that the optimal design for any given organization depends on a set of relevant situational factors.

Four basic situational factors – technology, environment, size, and organizational life cycle are discussed here. Another factor, strategy, is discussed in the next section.

A.

Core Technology 1. Technology is the conversion processes used to transform inputs into outputs.

2. While any organization often uses multiple technologies, its most important one is called its core technology.

3. Joan Woodward identified three basic forms of technology. Listed in assumed level of complexity. a) Unit or small-batch technology – custom-made products or small quantities made to customer specifications.

Extra Example: Other examples of unit or small-batch technology are: a medical laboratory that performs blood tests on request, a cabinetmaker who makes special cabinets for customers, and a software design firm that writes special programs to meet unique customer requirements. b)

Large-batch or mass-production technology – assembly line production.

Extra Example: Other examples of large-batch or mass-production technology are computer manufacturers like IBM and Hewlett-Packard, pen manufacturers like Cross, and bicycle makers like Schwinn. c)

Continuous-process technology –raw materials to finished goods accomplished by a series of machine or process transformations. Composition of the material changes.

Extra Example: Other examples of continuous-process technology include the fertilizer makers Scott‘s and paint manufacturers Sherwin-Williams.

4.

Woodward found that different configurations of organization design were associated with each technology.

As technology became more complex, the number of levels of management increased, the executive span of management increased, as did the relative size of its staff component. The supervisory span first increased then decreased with complexity.

At a general level, Woodward found the two extreme technologies were similar to a System 4 organization, while the middle-range were more like System 1‘s. The large-

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Chapter 11: Error! Unknown document property name. batch and mass-production organizations had higher levels of specialization. Finally, she found that success related to the extent the organization followed the typical pattern.

Teaching Tip: Note that Woodward‘s conceptualization of technology is actually relatively simple in terms of today‘s understanding of technology.

Group Exercise: Have small groups of students try to develop their own frameworks or taxonomies of technology.

Discussion Starter: Ask students whether service technology is likely to have a different influence on organization design from manufacturing technology.

B.

Environment Tom Burns and G. M. Stalker studied two extreme forms of organizational environment: stable (relatively constant over time) and unstable (subject to uncertainty and rapid change).

Two kinds of design emerged: mechanistic and organic.

Cross-Reference: Chapter 3 covered the environment from a variety of perspectives.

1.

2.

A mechanistic organization is similar to a bureaucratic or System 1 model, most frequently found in stable environments. Free from uncertainty, these organizations structure their activities in predictable ways by means of rules, specialized jobs, and centralized authority. It is An organic organization is a very flexible and informal model of organization design, most often found in unstable and unpredictable environments. Constant change and uncertainty dictate a higher level of fluidity and flexibility.

Paul R. Lawrence and Jay W. Lorsch brought these ideas to the United States (from Europe) but they believed this influence varies between different units of the same organization. They suggested organizations be characterized along two primary dimensions.

1. Differentiation is the extent to which the organization is broken down into subunits. A firm with many subunits is highly differentiated.

Extra Example: The Limited operates each of its businesses independently (differentiated).

2.

Integration is the degree to which the various subunits must work together in a coordinated fashion.

Lawrence and Lorsch reasoned the degree of differentiation and integration needed by an organization will depend on the stability of the environments it faces.

C.

Organizational Size Organizational size is the total number of full-time or full-time-equivalent employees. A team of researchers at the University of Aston believed Woodward failed to find a size – structure relationship because her chosen organizations were relatively small. They decided to study a wider array of organizations.

The Aston studies found technology did influence structure in small firms but the link broke down in large firms.

Basic generalizations include large organizations are characterized by higher levels of job specialization, more standard operating procedures, more rules, more regulations, and a greater degree of decentralization.

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Management 12e by Ricky W. Griffin Discussion Starter: Ask students to speculate about the kinds of differences in organization design that are likely to exist among larger versus smaller organizations.

D.

Organizational Life Cycle Organizational life cycle is a four-phase process through which organizations evolve. The stages include birth, youth (growth), midlife (gradual growth into stability), and maturity (stability into possible decline).

The organization‘s structure must evolve to cope with challenges in each stage of the process.

Extra Example: Note that different units within the same organization can be at different stages of their life cycles. For example, The Limited stores have been around since 1963 and are in their maturity stage. On the other hand, the Bath & Body Works chain is only a few years old and is in the youth (rapid growth) stage.

IV. STRATEGY AND ORGANIZATION DESIGN A.

Corporate-Level Strategy It is important for an organization to match its corporate-level strategy to its design.

A single-product strategy likely relies on functional departmentalization and can use a mechanistic design. Related diversification requires a high level of coordination and unrelated diversification will likely rely on a hierarchical reporting system.

Teaching Tip: Note that The Limited‘s corporate strategy is one of related diversification (clothing, lingerie, personal care products), allowing synergy in organization design. In contrast, General Electric uses unrelated diversification so they will have an organization design that does not necessarily try to promote synergy.

B.

Business-Level Strategy The type of business-level strategy an organization selects directly influences the design of the organization.

A defender strategy is likely tall and centralized, have a narrow span of management, and a functional approach to departmentalization, a bureaucratic approach to organization design.

A prospecting organization is more likely to be flatter and decentralized with wider spans of management, flexible and adaptable. An analyzer will be between these two extremes.

Teaching Tip: Note the interrelationships among environment and business strategy and how each is also related to organization design.

C.

Organizational Functions Normally, a firm‘s functional strategy and design link will be covered in the corporate- and business-level links.

Teaching Tip: Note that many organizational subunits, such as marketing, operations, or human resource management, have their own unique organization designs.

Teaching Tip: Note that the appropriate organization design for a particular firm is dependent on, or contingent on, the situational factors already discussed: technology, environment, size, and life cycle, as well as strategy.

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Cross-Reference: Note that we discussed the contingency perspective in Chapter 2. This perspective, which argues that appropriate managerial action is contingent on the situation, is the basis for this discussion of the situational nature of organization design.

V.

BASIC FORMS OF ORGANIZATION DESIGN Most designs fall into one of four basic categories, others are hybrids based on two or more of the basic forms.

A.

Functional (U-Form) Design The functional design is an arrangement based on the functional approach to departmentalization. (Chapter 10) This design also is referred to as the U-form (for unitary).

The organization groups members and units into functional departments such as marketing and production. This design requires considerable coordination across departments.

This approach shares the basic advantages and disadvantages of functional departmentalization. Functional experts staff positions it facilitates coordination and integration. However, it promotes a functional, rather and an organizational, focus and promotes centralization.

Extra Example: Most local automobile dealerships use a U-form design. The Outback Steakhouse restaurant chain also uses this form of organization design.

B.

Conglomerate (H-Form) Design The conglomerate, or H-form is used by an organization made up of a set of unrelated businesses. The nickname H-form refers to the holding company that results from unrelated diversification. (The H stands for holding.)

This approach is similar to the product form of departmentalization (Chapter 10). A general manager oversees each business or set of businesses. Each general manager functions independently of the others and is responsible for profits or losses in their business.

Corporate staff evaluate performance, allocate resources, and make decisions about buying and selling businesses. The basic shortcoming is complexity.

Extra Example: Tyco is another example of an H-form organization. Tyco has several unrelated divisions such security systems (ADT) and automotive products.

Group Exercise: Have students research and identify examples of H-form organizations.

C.

Divisional (M-Form) Design The divisional design, or M form (for multidivisional) is based on multiple businesses in related areas operating within a larger organizational framework.

This design results from a strategy of related diversification. Some activities are decentralized while others are centralized at the corporate level.

One of the biggest advantages of the M-form design is the opportunities for coordination and shared resources. The design‘s basic objective is to optimize internal competition and cooperation. Research shows, if kept in balance, the M-form outperforms the other two forms.

Extra Example: Other firms that use an M-form organization design include BristolMyers Squibb (prescription drugs, medical equipment, consumer health products, and toiletries and beauty aids) and Cooper Industries (automotive products, industrial equipment, electrical products, tools and hardware, and electrical power equipment).

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Management 12e by Ricky W. Griffin D.

Matrix Design The matrix design is based on two overlapping bases of departmentalization. There is a base of functional departments with a set of product groups superimposed across them.

Figure 11.4 shows a basic matrix design. At the top are functional units headed by vice presidents, each with several subordinates.

Along the side are a number of positions called project manager. Each heads a project group composed of representatives from the functional departments.

A multiple-command structure results when any given individual may report both to a functional superior and to one or more project managers.

The matrix form of design is common in one of three situations.

1. When there is strong pressure from the environment – intense external competition.

2. When large amounts of information need processing.

3. When there is pressure for shared resources.

Advantages of the matrix design.

1. Enhances flexibility – teams created and dissolved as needed.

2. Team members are likely highly motivated and committed.

3. Employees have opportunity to learn new skills.

4. Efficiently takes full advantage of human resources.

5. Enhances cooperation – team members act as bridges between teams and departments.

6. Gives top management a useful vehicle for decentralization.

Disadvantages of the matrix design.

1. Employees may be uncertain about reporting relationships.

2. Some managers view the matrix as a form of anarchy where they have unlimited freedom.

3. Groups take longer to make decisions, may be dominated by one individual, may compromise too much and lose focus of their primary objectives.

4. More time needed for coordinating task-related activities.

Teaching Tip: Note that the idea of a multiple-command structure essentially contradicts the idea of unity of command, as discussed in Chapter 10.

Extra Example: Business schools often use a matrix form of organization design.

Academic departments (management, marketing, and so forth) serve as functional departments, while various academic programs (undergraduate program, MBA program, honors program, and so forth) serve as product groups.

Discussion Starter: Ask students how they think they would function in a multiplecommand structure (i.e., having two bosses).

Cross-Reference: The foundation of matrix forms of organization design is work teams.

Teams are discussed more fully in Chapter 18.

E.

Hybrid Designs A hybrid design occurs when two or more of the common forms of organization design are combined.

Few companies use a design in its pure form. Most firms have one basic organization design as a foundation but maintain sufficient flexibility, facilitating modifications.

VI. EMERGING ISSUES IN ORGANIZATION DESIGN © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. .

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A.

The Team Organization A team organization is a form of organization design that relies almost exclusively on project-type teams, with little or no underlying functional hierarchy.

People float from project to project as necessitated by their skills and the demands of those projects.

Extra Example: Many high-tech and engineering firms like Hewlett-Packard and Microsoft are moving more and more in the direction of a team organization.

B.

The Virtual Organization A virtual organization is one with little or no formal structure. Typically there is a handful of permanent employees and a small staff and headquarters facility.

As needs changes, managers hire temporary workers, lease facilities, and outsource basic support services to meet demand. The organization exists only in response to its needs, conducting most, in not all, business online.

Extra Example: A football team resembles a virtual organization. The coach switches players on almost every play, depending upon the situation and tactics.

C.

The Learning Organization A learning organization is one that works to facilitate the lifelong learning and personal development of all of its employees while continually transforming itself to respond to changing demands and needs.

Frequent goals of organization‘s using this design are improved quality, continuous improvement, and performance measurement.

The idea is that by continuously immersing people in shared learning experiences the firm will promote an organic design populated by people with common knowledge, goals, and expectations.

D.

Issues in International Organization Design Because of the increased emphasis on globalization, it is important that a firm‘s organization design allows it to deal effectively in global markets.

Managers can reap important advantages when they approach international organization design from a strategic perspective rather than simply allowing it to evolve haphazardly.

Figure 11.5 illustrated four of the most common approaches to organization design used for international purposes.

The design shown in A is the simplest, relying on a separate international division.

The design shown in B, is an extension of location departmentalization.

An extension of product departmentalization, with each product manager being responsible for all product-related activities regardless of location, is shown in C. Finally, the design shown in D, most typical of larger multinational corporations, is an extension of the multidivisional structure with branches located in various foreign markets.

Global Connection: Note the similarities and differences among domestic forms of organization design and global forms of organization design.

Global Connection: Many international firms in the same industries have designs similar to one another. For example, Ford and Nissan have similar organization designs.

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Management 12e by Ricky W. Griffin

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the three forms of core technology. Tell about the differences in organizational structure that occur in firms with each of the three types.

Unit or small-batch technology is used by organizations when custom products are made in small quantities. These organizations typically use an organic structure that is flexible, decentralized, and participative. Organizations that function primarily as an assembly use large-batch or massproduction technology and often have organization structures that are rather mechanistic and bureaucratic. Continuous-process technology is employed by organizations where inputs undergo a series of transformations into a completely changed form of output, such as occurs in an oil refinery.

These organizations typically use an organic structure.

2.

List the changes that occur as an organization grows in size. List the changes that occur as an organization ages over time. Are the two lists the same? Explain any differences you find.

As organizations grow, they add employees and facilities, and they typically sell more products, obtain more revenues, and increase the complexity of both tasks and structure. As organizations age, they typically increase in both size and complexity. There are two reasons why growth and age are not synonymous. (1) A few organizations do not have growth as a significant goal, and therefore they may not grow as they age. (2) For organizations that do have growth as a significant goal, some are not successful in achieving that goal and may also fail to grow as they age.

3.

Describe the basic forms of organization design. What are the advantages and disadvantages of each?

The U-form design is a functional approach that breaks the firm into specialties such as marketing, production, and accounting. This design is simple and clear, but it may not be adequate for controlling a large, complex organization.

H-form designs combine a set of smaller unrelated businesses to form a holding company. Holding companies are very flexible and may be able to reduce overhead expenses. However, H-form firms can be difficult to manage because management may lack expertise in each unrelated industry.

M-form organizations are based on multiple businesses operating in related areas. This allows some activities to be decentralized and others to be centralized. The M-form provides a good balance of competition between units and cooperation for shared resources.

The matrix design combines the functional department by creating product groups or temporary departments. Matrix designs allow firms to experience ―the best of both worlds.‖ This design allows specialization, while also enhancing horizontal communication and giving management enhanced control. However, matrix designs may be confusing for workers who must report to two superiors.

4.

Compare and contrast the matrix organization and the team organization telling about any similarities and differences.

The matrix organization and the team organization are both attempts to improve the flexibility of an organization‘s structure. Both form groups of workers as required by the various projects they undertake. However, the primary difference is that the team organization does away with functional structure altogether. This is shown by the fact that, in the matrix organization, workers are assigned to both a functional and a project supervisor. In the team organization, workers are assigned to a team leader.

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Questions for Analysis 5.

The business world today is increasingly complex and variable, in virtually every country and industry. Thus organizations must become more organic. What are some of the outcomes that companies will experience as they become more organic and less mechanistic? Be sure to include both positive and negative outcomes.

An organic organization is most effective in responding to environments that are complex and variable, thus, the observed increase in the use of organic structures in recent years. Organic structures succeed in these difficult environments because they are flexible, participative, and decentralized. However, the use of organic structures can also present problems for an organization, notably how to coordinate and control the work of diverse, autonomous units.

6.

Each of the organization designs is appropriate for some firms but not for others. Describe the characteristics that a firm using the U-Form should have. Then do the same for the H-Form, the M-Form, and the matrix design. For each item, explain the relationship between that set of characteristics and the choice of organization design.

U-Form organization structure is best suited for organizations that uses functional departmentalization, such as small or new firms or firms that manufacture a single product. H-Form is most appropriate for firms pursuing unrelated diversification, where each unit may act without coordinating with the other units. The M-Form is best for firms pursuing related diversification because it enhances coordination between the units. Matrix designs work well for organizations that work on discrete projects, such as engineering, consulting, or accounting firms. Firms using the matrix design need functional expertise, but they also need flexibility and coordination across functions.

7.

What are the benefits of using the learning organization approach to design? Now consider that, in order to learn, organizations must be willing to tolerate many mistakes because it is only through the effort of understanding mistakes that learning can occur. With this statement in mind, what are some of the potential problems with the use of the learning organization approach?

Benefits include a well-trained and satisfied workforce, flexibility, improved quality and efficiency, and continuous improvement. However, managers must balance the competing demands of learning and perfection. In order to facilitate learning, managers must tolerate mistakes. But too many mistakes can lead to a breakdown in performance and distract attention from goal achievement. Intel managers have developed a unique approach to handling this problem. They first develop the optimal plant design, a process that involves lots of mistakes and lots of opportunities for learning.

Then, they ―copy exactly‖ that plant design as they build future plants. In other words, once the design is perfected, it is then reproduced over and over again. This achieves a balance between learning and efficiency.

Questions for Application 8.

Consider an organization (such as your workplace, a club or society, a sorority or fraternity, a church, and so on) of which you are a member. Describe some structural elements of that organization that reflect the bureaucratic model. Describe some elements that reflect the behavioral model. In your opinion, is that organization more bureaucratic or more behavioral in its structure? Why? Students‘ answer will vary, of course. Bureaucratic elements could include division of labor, the use of rules as a control, a hierarchical chain of command, impersonality and social distance, and centralization. Behavioral elements could include broadly defined jobs, the use of culture as a control, a democratic chain of command, personal relationships, and decentralization.

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Management 12e by Ricky W. Griffin 9.

Use the Internet or library to investigate a corporation’s strategy. Then use the Internet or library to obtain a description of the firm’s organization design. Can you identify any links between the company’s strategy and structure? Share your findings with the class.

Clearly, answers will vary. However, students should be able to find links between the firm‘s strategy and structure, such as the use of H-Form design by a firm pursuing unrelated diversification. Another example is the use of flat, decentralized, organic structures in firms that have a business-level strategy of differentiation.

10. What form of organization does your university or college use? What form does your city or town government use? What form do other organizations with which you are familiar use?

What similarities and differences do you see? Explain your answers.

The college or university is most likely utilizing some form of functional design.

Departmentalization by specialty area for specialization of study is expected. When considering the city or town government, students will often suggest the functional form because of the specialization of areas such as police, fire, and public works departments. There may be many similarities between the city or town government and the university or college. Both institutions are quite diverse with leaders that are likely to have diverse forms of specialization.

END OF CHAPTER EXERCISES Building Effective Conceptual Skills I.

Purpose This exercise develops students‘ conceptual skills by asking them to analyze a firm‘s structure and then draw an appropriate organization chart.

II.

Format This exercise is best done outside of class, either individually or in a small group. It should take about 30 minutes to complete.

III. Follow-Up A. Alone or with a partner, go online to research a publicly traded U.S. firm in which you‘re interested. Focus on information that will help you understand the company‘s structure. If you research Ford Motor Company, for example, you should look for information about different types of vehicles, different regions in which Ford products are sold, and different functions that the company performs. (Hint: The firm‘s annual report is usually available online and typically contains a great deal of helpful information. In particular, take a look at the section containing an editorial message from the chairman or CEO and the section summarizing financial information. Note: In many cases, ―segment‖ data reveal a lot about divisional structure.)

B. Draw an organization chart based on your research.

C. Share your results with another group or with the class as a whole. Be prepared to explain and justify the decisions that you made in determining the firm‘s structure.

Clearly, answers will vary. Ask students whether they consider they design to be a U-Form, HForm, M-Form, matrix, or some other design. Investigate the reasons behind their choices.

Building Effective Technical Skills I.

Purpose This exercise uses the development of an organizational structure under various circumstances as a way to build the students‘ technical skills.

II.

Format

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Chapter 11: Error! Unknown document property name.

Students must investigate the Segway technology outside of class using the Internet. Alternatively, you can provide information to them about the Segway. The follow-up questions may be done in or out of class, individually, or in a small group.

III. Follow-Up A. Your corporate-level strategy calls for continued production of a limited line of similar products for sale in the United States. What would be the most appropriate organization structure for your firm?

Most students will recommend the U-Form design because of the simple, functional nature of a company that produces a modest number of identical products.

B.

Your corporate-level strategy calls for continued production of a limited line of similar products for sale in the United States. What would be the most appropriate organization structure for your firm?

Students may continue to recommend the U-Form, or they may suggest a switch to an M-Form based on location departmentalization.

C.

Your corporate-level strategy calls for you to move into areas related to your core product, integrating the design innovations that you developed for that product into several other products. What would be the most appropriate organization structure for your firm?

Most students will recommend the M-Form design because that is most appropriate for a firm pursuing related diversification.

D.

Your corporate-level strategy calls for you to exploit your expertise in personal ground transportation in order to move into other areas, such as personal air or personal water transport. What would be the most appropriate organization structure for your firm?

M-Form design is best when a firm is diversified, although students who see the new areas as being unrelated to the original area may suggest the U-Form.

E.

Your corporate-level strategy calls for you to invest the revenue generated by core-product sales in industries unrelated to that product. What would be the most appropriate organization structure for your firm?

The U-Form design is most appropriate for firms that are pursuing unrelated diversification.

F.

Review your responses to each of the five strategies listed above. Explain precisely how a given strategy influenced your choice of a given organization design.

Reasons are given above. You can emphasize to students how this exercise shows the impact that a change in strategy can have on organization design.

MANAGEMENT AT WORK Dealing a Rigged Game The case study concerns Pete Miller, CEO of National Oilwell Varco (NOV) since 2001. Miller acquired over 200 companies, each with a strategic tie to the oil producing industry. The company now has a dominant share of the market for offshore drilling equipment, a segment of the industry that reported the most orders ever in 2013. NOV stands to capitalize on all segments of the future oil industry – the actual building of the drilling rigs, jack-ups, and ships that have to go offshore and do the drilling.

Management Update: In November 2013, Pete Miller announced he was stepping down as NOV‘s CEO to serve as executive chairman of DistributionNOW. Miller was replaced

by Clay Williams, the company‘s president and COO. 1.

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Case Question 1: Recall our definition of strategy in Chapter 7 as ―a comprehensive plan for accomplishing an organization‘s goals.‖ Explain why NOV‘s approach to acquisitions qualifies as corporate-level strategy. Be specific by discussing the company‘s moves, the nature and state of the © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Management 12e by Ricky W. Griffin industry that it‘s in (drilling equipment and services), the nature and state of the industry to which it‘s closely related (oil and gas drilling), and, most importantly, its goals. What are NOV‘s goals?

Though not specifically stated, NOV‘s goal seems to be cornering the market on the oil and gas drilling equipment and services industry. Miller‘s approach to acquisitions qualifies as a corporatelevel strategy because his vision defined the mix of industries and markets of interest to the firm.

When the oil industry hit its biggest recession from the early 1980s to the mid-1990s, many companies were in distress, in both the oil and gas drilling industry and the drilling equipment and services industry. Miller began purchasing these distressed companies, looking for anything that would eventually strengthen the company‘s position as a supplier of both new and replacement equipment.

2.

Case Question 2: How does each of the following situational influences on organizational design affect organizational design (and strategy) at NOV – core technology, environment, and organizational size? How about organizational life cycle? At what stage in that cycle would you put NOV? Which of NOV‘s actions give an indication of the company‘s life-cycle stage as management sees it? (Note: NOV intends to spend $100 billion in the next ten years.)

NOV‘s core technology is producing oil rigs, but they acquired many companies that provide parts and service for those rigs. The environment is a stable one with little change in product over the years other than safety features. The company now has only one competitor, Haliburton, but NOV owns 60 percent share of the key market for offshore drilling gear. This lack of relative uncertainty means Miller‘s acquisitions are not as risky as they seem. The company‘s size is smaller than Haliburton and appears to be the right size for now. Though the National Oilwell company was the original company National Oilwell Varco is relatively new and could be termed in maturity with moderate growth. During the acquisitions, NOV would have been in the youth, or growth stage.

3.

Case Question 3: Wall Street has a surprisingly uneasy relationship with NOV. Stock price, for example, hasn‘t nearly kept pace with increase in earnings over the past decade. For one thing, some sectors of the company‘s business make its overall performance somewhat volatile, and analysts at Motley Fool observe that ―NOV‘s volatility isn‘t its best feature.‖ Asked about the spinoff of DistributionNOW and subsequent reorganization, Pete Miller replied: ―We think it‘s going to give the analysts a better opportunity to be able to look at the company and say, ‗OK, I understand this part of it, and I understand this part of it,‘ and probably get a better valuation.‖ Strategically speaking, how would you characterize the message that the combination spinoff and organizational redesign are supposed to send to investors and analysts? Why do you suppose NOV management felt the need to send it? Why do you suppose it was sent when it was sent?

Students answer will vary. Strategically, the spinoff of the distribution company was the correct move. NOV is a related diversification company and the distribution portion of the business did not fit into the same industry. Divesting the company allows NOV to reorganize and concentrate on their core technology, oil rigs. Investors may have been rightly concerned about the number of acquisitions and size of the company may have alerted investors to a potential problem. The reorganization should send a clear message that NOV is focused again.

4.

Case Question 4: An investment analyst asked Pete Miller how his acquisitions strategy affects the company ―from the top down in your company culture.‖ How does the company culture ―allow your employees to buy into these new companies coming into the fold?‖ Miller replied, ―I don‘t think a company like ours can have a culture. We‘re too spread out. In 63 countries, you‘ve got all different cultures.‖ But he also added that employees understand how a strategy of acquisition provides opportunity. I tell everybody in this company, ―I‘m not sure what a CEO is supposed to do,‖ but one of the things that I do try to do is provide opportunity to our employees. You provide

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Chapter 11: Error! Unknown document property name. that opportunity by growing. As you continue to grow and people actually see the opportunity, then they see what it affords to employees as well as customers.

What about you? Would this theory of company culture, along with its theory about employee appreciation of opportunity, appeal to you? Would it be relevant to you in deciding whether to take a job at NOV? Would you want to work for a company with 64,000 employees in 63 countries?

Student responses will vary widely here.

CHAPTER 12

Managing Organization Change and Innovation CHAPTER SUMMARY This chapter is about organization change and innovation. It first introduces the nature of organization change and identify the basic issues of managing change. Next, areas of organization change are identified and discussed, including business process change, a major type of change undertaken by many firms recently. Subsequent sections are devoted to organization development and innovation as a vital form of change.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the nature of organization change, including forces for change and planned versus reactive change.

2.

Discuss the steps in organization change and how to manage resistance to change.

3.

Identify and describe major areas of organization change and discuss the assumptions, techniques, and effectiveness of organization development.

4.

Describe the innovation process, forms of innovation, failure to innovate, and how organizations can promote innovation.

MANAGEMENT IN ACTION Accenturate the Intrapreneurial Accenture, the world‘s largest management consulting firm, slowly created Accenture Development Partnerships (ADP), a break-even corporate social enterprise operated as a business unit within the company. ADP channels the firm‘s business strategy, technology, and project-management expertise into the international development sector – the area in which both public and private organizations address problems, such as disease and poverty that hinder economic growth in developing countries. ADP helps these organizations streamline their efforts and improve efficiency.

Discussion Starter: Ask students what they think about Accenture and ADP. Would they be willing to ‗serve‘ in the ADP program at drastically reduced wages? What sort of benefits does Accenture gain from such a program?

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LECTURE OUTLINE I.

THE NATURE OF ORGANIZATION CHANGE Organization change is any substantive modification to some part of the organization.

Teaching Tip: Note that there is no rigid line separating ―substantive‖ from ―nonsubstantive.‖ The point is, some changes are so trivial as to not warrant much attention (for example, changing from pink to green phone message slips). For a change to warrant managerial attention, it must be nontrivial—that is, it must be of substance.

A.

Forces for Change 1. External forces for change derive from the organization‘s general and task environments.

The general environment includes economic, technological, sociocultural, political-legal, and international dimensions.

Because of its proximity to the organization, the task environment is an even more powerful force for change. The task environment includes competitors, customers, suppliers, strategic partners, and regulators.

Global Connection: The formation of the European Union and adoption of the euro throughout much of Europe caused changes in European firms and around the world.

Extra Example: Recent changes in the use of equal opportunity initiatives, especially at universities, have also served as a powerful external force for change. Many schools have had to alter their admissions and other policies to conform to new regulations.

2.

Internal forces, such as organization strategy, can cause an organization to change.

Other internal forces for change may be reflections of external forces, such as a sociocultural values shift. It may be rooted in the external environment but the organization must respond directly to internal pressures.

Extra Example: In 2002, Yum! Brands adopted that name, switching from Tricon.

While Tricon was appropriate when the firm had just three major brands, as they added two more brands, a new name was needed that reflected the changes. This represents an internal force for change.

B.

Planned Versus Reactive Change Planned change is change that is designed and implemented in an orderly and timely fashion in anticipation of future events.

Interesting Quote: ―There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things.‖ (Niccolo Machiavelli, The Prince, a book about power and political behavior, published in 1513) Reactive change is a piecemeal response to circumstances as they develop.

Extra Example: Note that the first airline that launched a fare war was enacting a planned change because it made the decision and then implemented it in a proactive

Management 12e by Ricky W. Griffin fashion. However, other airlines that then chose to match the lower fares were enacting a reactive change—they were following the lead of a competitor.

Teaching Tip: Stress for students that no matter how effectively a manager plans for change, environmental uncertainty will also force occasional reactive change.

Teaching Tip: Also stress that reactive change is not necessarily always bad. For example, an unexpected business opportunity that will boost company profits might not have been anticipated. In general, however, planned change is preferable.

II.

MANAGING CHANGE IN ORGANIZATIONS Organization change is a complex phenomenon. Any change must be systematic and logical to have a realistic opportunity to succeed. Managers need to understand the steps in the change process. Countering employee resistance to change is the second part of managing change.

A.

Steps in the Change Process 1. The Lewin model (Kurt Lewin) suggests every change requires three steps: The first step is unfreezing the people affected by the impending change must be led to recognize why the change is necessary.

Next, comes the implementation of the change itself.

Finally, refreezing the people involved by reinforcing and supporting the change until it becomes part of the system.

Lewin‘s model lacks operational specificity, a more comprehensive model is needed.

Teaching Tip: A good way to teach the Lewin model is to use the literal meaning of the terms used to describe the process. If a person wants to change the shape of an ice cube into an ice sphere, using a hammer and chisel will likely break it or create an odd-shaped result. A better way is to unfreeze the ice cube, pour the water into a spherical mold, and then refreeze it in the desired shape.

2.

The comprehensive approach to change takes a systems view and delineates a series of specific steps that often lead to successful change.

Step 1: recognition of the need for change.

This could be reactive or planned change. Managers may recognize high turnover rates.

Step 2: establishment of goals for the change.

Management may set goals to decrease turnover rates.

Step 3: diagnosis of relevant variables.

Turnover may a result of low pay, poor working conditions, or poor supervisors.

Identifying correct changes requires understanding the problem.

Step 4: selection of appropriate change techniques.

If turnover is caused by low pay, a new reward system may be needed.

Step 5: planning for implementation of the change.

Issues to consider include the costs of the change, its effects on other areas, and the degree of employee participation required.

Step 6: actual implementation.

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Step 7: evaluation and follow-up.

Managers must check turnover after the change, other changes may be necessary.

Group Exercise: Have students plan a hypothetical change intervention using the comprehensive model as a framework.

B.

Understanding Resistance to Change For a variety of reasons, some people often resist change.

1.

2.

Uncertainty may be the biggest cause of employee resistance to change.

Threatened self-interests or the loss of power by some managers within the organization also causes resistance to change.

Discussion Starter: Ask students for personal examples of people they know who have been or who are reluctant to adopt new forms of technology.

Global Connection: People from some cultures are more comfortable with change than are people from other cultures. For example, people from Denmark, the United States, Canada, Norway, and Hong Kong are relatively more comfortable with change than are people from Japan, Italy, France, and Belgium.

3.

4.

Different perceptions of the people who recommend the change and the people who are affected by the change may cause resistance to the change.

Feelings of loss that arise from disrupted social networks or altered work arrangements may cause those affected to resist the change.

Discussion Starter: Ask students how they feel about change. For those who do not like change, ask them to explain why they feel as they do.

C.

Overcoming Resistance to Change 1. Participation is often the most effective technique for overcoming resistance to change.

Teaching Tip: Note the reciprocal relationship between change and participation— participation overcomes resistance to change, while change often increases participation.

Discussion Starter: Ask students to share examples of changes in which they were allowed to participate and those in which they had no participation. Students might list changes such as re-scheduling an exam or facing a tuition increase. How did they feel in each case? Why does participation help to overcome resistance to change?

2.

3.

4.

Education and communication aimed at employees affected by the change also can reduce resistance to change.

Facilitation procedures, such as announcing the changes in advance to provide employees a chance to get used to the change, can help reduce resistance to change.

Force-field analysis, in which the forces for and against the change are delineated and the forces against the change are minimized, can be used to reduce resistance to change.

Group Exercise: Have students perform a force-field analysis for a hypothetical change at your school. Potential examples for this exercise include changing or abolishing a long-standing tradition, adjusting class schedules, or eliminating an academic program.

III. AREAS OF ORGANIZATION CHANGE

Management 12e by Ricky W. Griffin Change can happen within any part of an organization. In general, however, most change interventions involve organization structure and design, technology and operation, or people. In addition, many organizations have gone through business process change programs.

Teaching Tip: Use Table 12.1 of the text to organize and summarize the various key areas of organization change.

Cross-Reference: Note that the various topics and concepts discussed in Chapters 10 and 11 are often the basis for organization change.

A.

Changing Structure and Design Organization change might focus on any of the basic components of organization structure or on the organization‘s overall design.

1. The organization may change the way it designs its jobs or its bases of departmentalization. It might change reporting relationships or the distribution of authority.

2. On a larger scale, the organization might change its overall design such as transforming into a matrix or a change in culture.

B.

Changing Technology and Operations 1. A change in technology, or how the inputs become outputs, will usually force other changes in the organization. Frequently it may mean the introduction of new machines or a change in the way in which the product is made.

2. A very complex type of technology change is the adoption of enterprise resource planning, or ERP, a large-scale information system for integrating and synchronizing the many activities in the extended enterprise. Introduction of an ERP system will cause many radical changes throughout the organization.

Extra Example: Note that breakthroughs in information technology (i.e., PCs, computer networks, FAX machines, voice mail systems, satellite communication networks, the Internet, etc.) represent the most profound sources of changing technology in history.

Group Exercise: Ask groups of students to identify examples of operations changes they have recently encountered. Potential examples include changes in how fast-food restaurants serve customers, how retail stores handle checkout procedures, and how their school performs registration and billing functions.

C.

Changing People, Attitudes, and Behaviors Changing people also may occur if an organization decides to change the skill level in the workforce, the workers‘ perceptions and expectations, or their attitudes and values.

D.

Changing Business Processes Interesting Quote: ―If you want to get something funded around here—anything, even a new chair for your office—call it reengineering on your request for expenditure.‖ (unnamed telephone company executive, Fortune, August 23, 1993, 41.)

1.

2.

3.

Business process change, or reengineering, is the radical redesign of all aspects of a business to achieve major gains in cost, service, or time. ERP is a common platform for changing business processes but business process change is a more comprehensive set of changes that goes beyond software and information systems.

Over time, most organizations experience entropy, or system-wide decline. Business process change allows managers to revitalize a stagnant firm.

Business process reengineering has five steps.

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a) b) c) d) e)

Step 1: Set goals and develop a strategy.

Step 2: Emphasize top management commitment.

Step 3: Create a sense of urgency.

Step 4: Start with a clean slate.

Step 5: Optimize top-down and bottom-up perspectives.

Extra Example: Other firms that have undergone reengineering include AT&T, Blue Cross of Washington, Hallmark, and Union Carbide.

Teaching Tip: Note that some experts consider reengineering to be just a management fad, and expect it will soon be replaced by some other management technique. Others, however, see it as a more enduring method for improving organizational effectiveness.

Discussion Starter: Ask students which areas of change—organization structure and design, technology and operations, people or business processes—are likely to be the easiest and the most difficult to implement.

C.

Organization Development (OD) 1. Organization development (OD) is a planned, organization-wide effort, managed from the top, intended to increase organizational effectiveness and health through planned interventions in the organization‘s process, using behavioral science knowledge.

2. The practice of OD is based on the assumptions that employees have the desire to grow and develop, they have a strong need to be accepted by others, and the design of the organization will influence the way employees behave.

3. OD Techniques (many companies use either internal or external OD consultants) a) Diagnostic activities are used to analyze the current condition of an organization.

These techniques can include questionnaires, surveys, interviews, and meetings. b) Team building activities enhance the effectiveness and satisfaction of individuals and promote overall group effectiveness.

Extra Example: Team building is an especially important OD technique today. For example, executives at Colgate-Palmolive regularly participate in team building programs designed to help them function more effectively as a cohesive unit. c) d)

Survey feedback gathers and presents employee responses to a questionnaire measuring perceptions and attitudes. Used to change behavior of supervisors.

Education can focus on sensitivity skills such as consideration and understanding.

Extra Example: As part of an OD program a few years ago, Baker-Hughes provided twenty hours of classroom instruction to each employee. The instruction was designed to help people in the organization work together more effectively. e) f) g) h)

Intergroup activities improve the relationship between groups by promoting cooperation and resolving conflicts.

Third-party peacemaking uses mediation and negotiation when conflict exists.

Technostructural activities are concerned with the design and technology of the organization and the interrelationship of those with people on the job.

Process consultation occurs when an OD consultant observes groups to understand their communication, decision-making, cooperation and conflict resolution.

Teaching Tip: Many firms promote diversity through education and process consultation.

Extra Example: Other firms have internal OD consultants – Exxon, AT&T, and Boeing.

Management 12e by Ricky W. Griffin i) j)

Life and career planning helps employees formulate personal goals and evaluate strategies for integrating their goals with the goals of the organization.

Coaching and counseling provides nonevaluative feedback to individuals to help them develop a sense of how others see them.

Teaching Tip: As the role of leaders continues to change (Chapter 16), coaching and counseling activities are increasingly being performed by managers themselves. k) 4.

Planning and goal setting is designed to help managers improve their planning and goal-setting skills.

The effectiveness of OD varies. Some organizations use it regularly, while others have tried it and discarded it because it was not useful.

Global Connection: OD is often used in Europe, although not as extensively as in the United States. It is seldom used in Asia, however.

IV. ORGANIZATIONAL INNOVATION Innovation is the managed effort of an organization to develop new products or services or new uses for existing products or services. Without innovation, organizations fall behind competitors.

A.

The Innovation Process The organizational innovation process consists of developing, applying, launching, growing, and managing the maturity and decline of creative ideas.

1.

Innovation development involves the evaluation, modification, and improvement of creative ideas.

Teaching Tip: To varying degrees, all organizations seek innovation. However, some make innovation a high-priority goal, whereas others take a more deliberate approach.

Extra Example: 3M and Sony are among the most innovative firms in the world today.

2.

3.

4.

5.

6.

Innovation application is the stage in which an organization takes a developed idea and uses it in the design, manufacture, or delivery of new products, services, or processes.

Application launch is the stage in which an organization introduces new products or services to the marketplace.

Application growth occurs when demand for the new product or service increases.

Organizations that fail to anticipate growth may unintentionally limit their growth.

Innovation maturity is the stage in which other organizations have access to the idea and are applying it in approximately the same way.

Innovation decline is the stage during which demand decreases and substitute innovations are developed and applied.

Cross-Reference: Note the similarities between the innovation process and the product life cycle (Chapter 7). In many ways, the innovation process is a more detailed description of the same process.

B.

Forms of Innovation 1. Radical versus incremental innovations a) Radical innovation is a new product, service, or technology that completely replaces an existing one. b) Incremental innovation is a new product, service, or technology that modifies an existing one.

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Extra Example: Examples of radical innovations include CDS, which essentially replaced vinyl records, and PCs, which have almost completely replaced typewriters.

2.

Technical versus managerial innovations a) Technical innovation is a change in the appearance or performance of products or services, or of the physical processes through which a product or service passes. b) Managerial innovation is a change in the management process by which products and services are conceived, built, and delivered to customers.

Cross-Reference: Reengineering, as discussed earlier, is a managerial innovation.

3.

Product versus process innovations a) Product innovation is a change in the physical characteristics or performance of existing products or services, or the creation of new ones. b) Process innovation is a change in the way products or services are manufactured, created, or distributed.

Extra Example: Dell Computer became a success in part because of its direct mail strategy, which was a process innovation.

Teaching Tip: The relationship of product and process innovation to economic return, presented in Figure 12.5 may be a bit complex for some students. Take some extra time to make sure they understand it before proceeding.

C.

The Failure to Innovate Global Connection: When BMW, Mercedes, Volvo, and other European luxury automakers failed to innovate, Japanese brands like the Lexus and Infiniti gained market share due to their strong innovation.

1.

2.

If a firm lacks resources, for example if it has insufficient money to fund a program of innovation, it may lag behind in innovation.

If organizations are not skilled at recognizing and evaluating opportunities, they may fail to invest in an innovation that would have been successful.

Extra Example: Years ago, several publishers turned down the best-selling title The Bridges of Madison County because they thought there was no market for it.

3.

Innovation means giving up old products, which means change. Many people are resistant to change and, therefore, resistant to innovation.

Cross-Reference: Note that we discussed resistance to change earlier in this chapter.

D.

Promoting Innovation in Organizations 1. To increase innovation, it is important to provide financial and nonfinancial rewards to people and groups who are innovative and creative. It is also important to avoid punishing workers for innovation, even if the innovation is ultimately a failure.

Cross-Reference: We cover reward systems in more detail in Chapters 13 and 15.

2.

Organization culture can be used to support creative and innovative activities.

Cross-Reference: Note that we discussed organizational culture in Chapter 3.

3.

Intrapreneurs are similar to entrepreneurs, but they develop new businesses in the context of a large organization. Successful programs needs someone to fill these roles:

Management 12e by Ricky W. Griffin a) b) c)

The inventor is the person who actually conceives of and develops the new idea, product, or service by means of the creative process.

A product champion is usually a middle manager who learns about the project and becomes committed to it.

A sponsor is a top-level manager who approves of and supports a project.

END OF CHAPTER QUESTIONS Questions for Review 1.

What forces or kinds of events lead to organization change? Identify each force or event as a planned or a reactive change.

Both internal and external forces encourage change. External forces in the general and task environment may change, encouraging the organization to change. The task environment is most closely linked to the organization; therefore, any change in it will have a strong and immediate effect. Internal forces can also affect the organization. Generally, there is no way to know whether internal or external forces will lead to planned or reactive.

2.

Compare planned and reactive change. What are the advantages of planned change as compared to reactive change?

Planned change has the advantage of a systematic and logical process for planning and implementation of a change. The process allows time for thorough investigation into causes, for careful consideration of alternatives, for solicitation of feedback, and for orderly implementation of the chosen alternative.

3.

In a brief sentence or just a phrase, describe each of the organizational development (OD) techniques.

OD techniques include: (1) diagnostic activities—quizzing workers and examining archives to determine the causes of problems; (2) team building—fostering good interpersonal relations and participation; (3) survey feedback—using surveys to measure perceptions; (4) education—training in ―people‖ skills; (5) intergroup activities—working to improve the relationship between two or more groups; (6) third-party peacemaking—intervention from an outside party in resolving a conflict between others; (7) technostructural activities—change the organization design and/or the prevailing technology; (8) process consultation—observation and recommendations from an expert on improving interpersonal processes; (9) life and career planning—helping employees formal personal and career goals; (10) coaching and counseling—recommendations to workers and managers on performance improvements; and (11) planning and goal setting—teaching the mechanics of the decision-making process.

4.

Consider the following list of innovations. Categorize each along all three dimensions of innovation, if possible (radical versus incremental, technical versus managerial, and product versus process). Explain your answers.       

Teaching college courses by videotaping the instructor and sending the image over the Internet The rise in popularity of virtual organizations (discussed in Chapter 11) Checking the security of packages on airlines with the type of MRI scanning devices that are common in healthcare A device combining features of a cell phone and a handheld computer with Internet capability Robotic arms that can perform surgery that is too precise for a human surgeon‘s hands Hybrid automobiles, which run off of both batteries and gasoline Using video games to teach soldiers how to plan and execute battles

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Online college courses—a radical, technical, product and process innovation. Virtual organizations—a radical, technical and managerial, process innovation. MRI scanning of packages—an incremental, technical, process innovation. An all-purpose communication device— an incremental, technical, product innovation. Robotic surgery—an incremental, technical, process innovation. Hybrid automobiles—an incremental, technical, product innovation. Military training via video games—an incremental, technical and managerial, process innovation.

Questions for Analysis 5.

What are the symptoms that a manager should look for in determining whether an organization needs to change? What are the symptoms that indicate that an organization has been through too much change?

Poor performance, defined broadly, is the best indicator of the need to change. Poor performance might be manifested in declining profitability, falling sales, negative customer feedback, dissatisfied employees, and so on. An organization that has changed too much or too quickly will find high resistance to further change, inefficiency, and chaotic or incomplete organizational systems and processes, among other signs.

6. Assume that you are the manager of an organization that has a routine way of performing a task and now faces a major change in how it performs that task. Using Lewin’s model, tell what steps you would take to implement the change. Using the comprehensive approach, tell what steps you would take. For each step, give specific examples of actions you would take at that step.

Lewin states that organizations must unfreeze, or accustom employees to the need for change, before beginning the change. So students should focus first on convincing employees that change is needed. This might involve showing negative performance results to employees. Next, the change should be implemented. Finally, the organization must be ―refrozen‖ in its new configuration. This might involve working to fix any remaining problems related to the change and reassuring workers that the change is now complete.

7. Think back to a time when a professor announced a change that you, the student, did not want to adopt. What were the reasons for your resistance to change? Was the professor able to overcome your resistance? If so, tell what he or she did. If not, tell what he or she could have done that might have been successful.

Students‘ answers will vary, but most will probably mention uncertainty about exactly what the change would involve, threatened self-interests, and different perceptions, especially in the gap between the perceptions of the teacher and the students. Professors that were successful in overcoming resistance probably asked students to participate in making decisions related to the change, explained the change carefully, answered students‘ questions thoughtfully, and announced the change well in advance. Professors who were unsuccessful in overcoming resistance should consider one or more of those tactics in the future.

Questions for Application 8. Some people resist change, whereas others welcome it enthusiastically. To deal with the first group, one needs to overcome resistance to change; to deal with the second, one needs to overcome resistance to stability. What advice can you give a manager facing the latter situation?

The people who resist stability are searching for something new, different, or better all the time.

Some resistance to stability is appropriate and useful to move a business forward. However, people must possess enough stability to reduce to the need to always be seeking change. To allow this

Management 12e by Ricky W. Griffin stability, individuals should be encouraged to look at the good in the present. Although stability may not appear to be motivating, individuals may not be seeing the value in the way things are at present.

9. Can a change made in one area of an organization— in technology, for instance—not lead to change in other areas? If you think that change in one area must lead to change in other areas, describe an example of an organization change to illustrate your point. If you think that change can occur in just one area without causing change in other areas, describe an example of an organization change that illustrates your point.

Students‘ opinions will vary. For example, if the student feels that change in one area must lead to changes in other areas, they may tell about a time when their employer redesigned jobs and then had to train workers in the newly-required skills.

10. Research an innovation change that occurred in a real organization, by interviewing an employee, reading the business press, or using the Internet. Describe the process by which the innovation was developed. Did the actual process follow the ideal process described in the chapter? Why or why not?

Students will find various examples, of course. They should explain what they find in terms of the innovation process described in the text, and then compare the ideal process to what they have described.

END OF CHAPTER EXERCISES Building Effective Decision-Making Skills I.

Purpose This exercise provides a format for analyzing the phases in a decision-making process.

II.

Format The exercise involves both individual and group work. The individual identifies a change at work or in personal life and examines it using the unfreezing, changing, refreezing steps. The class then breaks up into groups where students share their plans for change.

III. Follow-Up A. The last part is an individual follow-up activity where the individual reflects on the experience.

Building Effective Diagnostic Skills I.

Purpose This exercise aids students in understanding how managers approach making decisions related to organization change.

II.

Format The diagnostic skills exercise can be performed individually or in groups. It should take about 15– 30 minutes to complete.

III. Follow-Up A. Rank-order your four alternatives in terms of probable success. Make any necessary assumptions.

B. Identify alternatives other than the four that you identified above.

C. Can more than one alternative be pursued simultaneously? Which ones?

D. Develop an overall strategy for trying to save the hotel while also protecting your own interests.

Students‘ answers will vary considerably, depending upon which alternative they prefer and on the assumptions they make. However, all students should see that significant changes must occur in the near future, and will involve the owners, franchisers, employees, and managers. You can point out to students that, in many decisions, there are often additional opportunities to © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. .

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implement alternatives simultaneously, using the best features of each. Finally, students should realize that, in the face of a difficult situation, protecting one‘s self-interests may involve seeking another job, even while continuing to work toward a happy resolution at the current job.

MANAGEMENT AT WORK Kodak Fails to Focus on the Big Picture The closing case focuses on Kodak and their failure to innovate through the transition from analog to digital technology. It appears Kodak had the resources to innovate and they recognized the coming transition but incorrectly evaluated the needs and desires of the consumer. In addition, members of the company feared change and resisted change efforts. For these reasons, Kodak went from a top 20 Fortune 500 company to bankruptcy in 2012.

Management Update: There are signs Kodak may survive. During bankruptcy, Kodak put Eastman Park up for sale. Eastman Park is a giant industrial complex built in the early 1900s to meet demand for the company‘s photographic and film products. In 2015, the company took the park off the market and turned it into a separate company division.

With a focus on clean technology, over 60 companies have key operations on the site.

1.

Case Question 1: Explain how – theoretically, anyway – making ―change innovations‖ in each of the following Areas of Organizational Change might have helped Kodak ease the severity of the conditions that led it to bankruptcy and the challenges facing it now that it‘s emerged from bankruptcy: changing organization structure and design, changing people and attitudes, and changing processes.

Kodak was poised to make planned changes but without making those changes, they were forced to make reactive changes. Kodak could have changed their departmentalization and job titles reflecting the importance of the approaching digital transformation. Changing reporting relationships or distributions of authority would have sent a message to workers that change was coming. A change in work processes was clearly in order due to the technology and tools required for analog picture and film production is drastically different from digital production. Kodak could have educated, or replaced if necessary, managers who resisted change.

2.

Case Question 2: Judging from the case, explain how, at one point or another, each of the following reasons for Failure to Innovate played a role in the process that brought Kodak to bankruptcy: lack of resources, failure to recognize opportunities, resistance to change.

Lack of financial resources did not appear to be a problem but not allocating resources where needed may have been a problem. Kodak brought in an executive hired for the purpose of transitioning the company from analog technology to digital technology. How the company failed was not allowing the executive to do his job. When he suggested changes, he was met with resistance and no support from top managers. Kodak also failed to recognize opportunities due to their ‗manufacturing mindset‘ of building something and expecting consumers to buy. These problems coupled with overall resistance to change doomed the transition.

3.

Case Question 3: You can still buy a digital camera with the Kodak name on it, and you can still print pictures at digital kiosks in your local drugstore. These businesses, however, are no longer owned by Kodak. In addition, Kodak no longer publishes photos online or makes pocket video cameras, camera film, or photographic paper. Having emerged from bankruptcy, Kodak intends to focus on the commercial side of the imaging business, such as packaging labels and graphics and printing solutions to client businesses. It also plans to make components and products that other companies can sell under their own brands. In what ways does each of the following Forms of Innovation figure to play a role in Kodak‘s efforts to rebuild itself after bankruptcy: radical

Management 12e by Ricky W. Griffin innovations, incremental innovations, technical innovations, product innovations, and process innovations?

Kodak may still develop radical innovations but will likely quickly sell them, depending more on incremental innovations improving existing products. The importance of technical innovations remains as technology advances. Kodak must continue to support the transition through managerial innovation. Kodak must remain vigilant on product innovation but they must also keep flexible allowing any needed changes in process innovations.

4.

Case Question 4: How about you? How surprised are you to learn how fast a blue-chip corporation with a line of household-name products can collapse? Do you think that we live in times that make such stories as Kodak‘s more or less likely? In your opinion, what‘s the most important downside of the demise of a company such as Kodak? What‘s the most important upside?

Answers will vary widely. Most will not be surprised due to the relatively fast rise of digital technology and the nearly complete replacement of analog technology. The most important downside should be the recognition of what could happen to a company who fails to innovate and/or fails to stifle resistance to change. The important upside is the lesson learned.

CHAPTER 13

Managing Human Resources in Organizations CHAPTER SUMMARY This chapter is about how organizations manage the people that comprise them. The set of processes by which companies manage their people is called ―human resource management,‖ or HRM. The chapter starts by describing the environmental context of HRM. The text continues discussing how organizations attract human resources. Next, the text describes how organizations seek to further develop the capacities of their human resources. The text then examines how high-quality human resources are maintained by organizations. The chapter concludes by discussing labor relations.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the environmental context of human resource management, including its strategic importance and its relationship with legal and social factors.

2.

Discuss how organizations attract human resources, including human resource planning, recruiting, and selecting.

3.

Describe how organizations develop human resources, including training and development, performance appraisal, and performance feedback.

4.

Discuss how organizations maintain human resources, including the determination of compensation and benefits and career planning.

5.

Discuss labor relations, including how employees form unions and the mechanics of collective bargaining.

6.

Describe the key issues associated with managing knowledge workers and contingent and temporary workers.

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MANAGEMENT IN ACTION Elementary, Watson The opening case discusses IBM‘s Watson, a cognitive computing system that handles complex problems in which there is ambiguity and uncertainty and draw inferences from data in a way that mimics the human brain. In short, it can deal with the kinds of problems faced by real people. The case outlines how Watson is already aiding the medical community by ingesting a large portion of the world‘s medical information. They system learns patterns, it learns outcomes, it learns what sources to trust. Working with Watson, doctors focused on leukemia use him to expand capacity and increase speed. Will Watson replace doctors? It seems they may soon be able to replace lawyers.

Discussion Starter: Ask students if they would personally trust Watson‘s medical diagnosis. Would they trust Watson more than they trust the doctor? How about legal advice, would they trust Watson more than a lawyer? Is there a difference in taking medical advice from a machine as opposed to taking legal advice from a machine?

LECTURE OUTLINE I.

THE ENVIRONMENTAL CONTEXT OF HUMAN RESOURCE MANAGEMENT Human resource management (HRM) is the set of organizational activities directed at attracting, developing, and maintaining an effective workforce.

HRM takes place within a complex and ever-changing environmental context. Three vital components of this context are HRM‘s strategic importance, the legal and the social environments of HRM. Teaching Tip: Most business programs have a separate course in human resource management, and many offer a major or specialization in the area. If any of these apply to your school, point them out to your students.

A.

The Strategic Importance of HRM 1. Human resources are critical for both effectiveness and competiveness. HRMs growing importance stems from increased legal complexities, the recognition that human resources are a valuable means of improving productivity, and the increased costs associated with poor HRM. Effective HRM functions translate into effective organizations. Many firms develop strategic HR plans and integrate those plans with other strategic planning activities.

2. Human capital reflects the organization‘s investment in attracting, retaining, and motivating an effective workforce. It serves as a tangible indicator of the value of the people who comprise an organization. Talent management is also a term growing in popularity.

Teaching Tip: Point out that all organizations can build similar factories, adopt similar technology, and make similar products. However, the way in which they manage their human resources may differ and can lead to competitive advantage.

B.

The Legal Environment of HRM

Management 12e by Ricky W. Griffin A number of laws regulate employee-employer relations, especially in the areas of equal employment opportunity, compensation and benefits, labor relations and occupational safety and health.

Teaching Tip: Table 13.1 summarizes the discussion of employment laws.

Global Connection: Most foreign countries have far fewer laws regulating human resource management practices than does the U.S. 1.

Equal employment opportunity a) Title VII of the Civil Rights Act of 1964 forbids discrimination on the basis of sex, race, color, religion, or national origin in all areas of the employment relationship. It applies to direct and indirect discrimination and requires employment decisions be made based on an individual‘s qualifications. b) Tests for qualifications may not have an adverse impact. An employment test has adverse impact when minority group members pass a selection standard at a rate less than 80 percent of the pass rate of majority group members.

Teaching Tip: Note that Title VII was really the beginning of the legal environment regarding HRM. c) d) e)

f)

The Equal Employment Opportunity Commission (EEOC) is a federal agency charged with enforcing Title VII and other antidiscrimination laws.

The Age Discrimination in Employment Act outlaws discrimination against people older than 40 years; passed in 1967, amended in 1978 and 1986.

Both the Age Discrimination in Employment Act and Title VII require passive nondiscrimination, or equal employment opportunity. Employers are not required to seek out and hire minorities or people over 40, but they must fairly treat all who apply.

Affirmative action is intentionally seeking and hiring qualified or qualifiable employees from racial, sexual, and ethnic groups that are underrepresented in an organization. Employers holding government contracts require they engage in affirmative action. They must have written action plans and employment goals.

They are required to act affirmatively in hiring Vietnam veterans as a result of the Vietnam Era Veterans Readjustment Assistance Act. The Pregnancy Discrimination Act forbids discrimination against women who are pregnant.

Discussion Starter: One of the most controversial issues in the United States today is affirmative action. Some people believe that affirmative action has outlived its usefulness and should be eliminated. Others think it still necessary. Ask students for their opinions. g)

2.

The Americans with Disabilities Act (ADA) prohibits discrimination against people with disabilities. Passed in 1990, the law requires employers make reasonable accommodations for employees with disabilities. h) The Civil Rights Act of 1991 amends the original Civil Rights Act, making it easier to bring discrimination lawsuits while also limiting punitive damages.

Compensation and benefits a) The Fair Labor Standards Act sets a minimum wage and requires overtime pay for work in excess of 40 hours per week; passed in 1938 and amended frequently since then. Salaried professional, executive, and administrative employees are exempt from the minimum hourly wage and overtime provisions.

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b)

The Equal Pay Act of 1963 requires that men and women be paid the same amount for doing the same job. Basing pay on seniority or performance is legal.

Extra Example: Female workers, on average, make only about 75 percent of what the average male worker makes. Most of this difference is due to the women‘s choice of occupations because the traditional ―female‖ careers such as nursing, teaching, and clerical work pay far less than traditional ―male‖ careers such as construction or business.

Also, women are more likely to work part time where pay rates are often lower. c)

3.

The Employee Retirement Income Security Act of 1974 (ERISA) regulates how organizations manage their pension funds. d) The Family and Medical Leave Act of 1993 requires employers provide up to 12 weeks of unpaid leave for family and medical emergencies.

Labor relations a) The National Labor Relations Act passed in 1935 to set up procedures for employees to vote on whether to have a union; also known as the Wagner Act. b) The National Labor Relations Board (NLRB) was established by the Wagner Act to enforce its provisions. c) The Labor-Management Relations Act was passed in 1947 to limit union power; also known as the Taft-Hartley Act. The Taft-Hartley Act also contains the National Emergency Strike provision, allowing the president to prevent or end a strike that endangers national security.

Management Update: Former President Clinton did not use the Taft-Hartley Act to end a 1997 strike by United Parcel Service (UPS) workers. He and his advisors felt that UPS was not sufficiently important to the U.S. economy to warrant stopping the strike. UPS lost about 25 percent of its business to rivals Federal Express and the U.S. Postal Service, and customers were slow to return after the strike ended.

Management Update: President Clinton did, however, order an end to the 1997 strike by American Airlines pilots. The airline was seen as vital to the continued well-being of the U.S. economy because it carried 20 percent of all U.S. air passengers on any given day.

4.

Health and safety The Occupational Safety and Health Act of 1970 (OSHA) directly mandates the provision of safe working conditions. It requires that employers (1) provide a place of employment that is free from hazards that may cause death or serious physical harm and (2) obey the safety and health standards established by the Department of Labor.

Management Update: A recent controversy about health and safety relates to employees who work at home. Specifically, if an employee working at home suffers an accident due to poor lighting or improper equipment, their employer is just as liable as if the problem had occurred at work!

Discussion Starter: Ask students to comment on the pluses and minuses of each of the various laws summarized above.

5.

Sexual harassment, alcoholism, drug dependence, AIDS, and employee privacy have emerged as significant legal issues for organizations.

Extra Example: The Michael Crichton book and movie Disclosure (with Michael Douglas and Demi Moore) featured a case of sexual harassment as its major plot theme.

C.

Social Change and HRM

Management 12e by Ricky W. Griffin Current examples of social change relevant to HRM are the increasing use of temporary workers and an increase in dual-career families. Employment-at-will is a traditional view of the workplace that says organizations can fire their employees for whatever reason they want; recent court judgments are limiting employment-at-will.

Teaching Tip: Discuss with your students the extent to which the employment-at-will doctrine is more or less relevant to your state or region.

II.

ATTRACTING HUMAN RESOURCES A.

Human Resource Planning The starting point in attracting qualified human resources is planning. HR planning involves job analysis and forecasting the demand and supply of labor.

1. Job analysis is a systemized procedure for collecting and recording information about jobs within an organization. There are two parts of a job analysis. a) A job description lists the duties of a job, its working conditions, and the tools, materials, and equipment used to perform it.

Teaching Tip: Obtain a copy of a job description and share it with your students. b) 2.

A job specification describes the skills, abilities, and credentials required to perform the job.

Forecasting human resource demand and supply requires managers to collect relevant information, forecast the supply and demand of labor, and then develop appropriate strategies for addressing differences. Forecasting the supply of labor is really two tasks: forecasting the internal supply and the external supply.

Extra Example: There is currently a shortage of skilled workers in the United States. a)

Replacement charts can be used to plan for management positions. These list each important managerial position, who occupies it now, how long he or she will probably stay in it before moving up, and who is or soon will be qualified to move into the position.

Extra Example: Disney experienced problems due to the lack of a replacement chart.

Michael Eisner (the firm‘s top executive) was having emergency heart surgery, Frank Wells (the firm‘s number two executive) had just been killed in a plane crash, and Jeffrey Katzenberg (the firm‘s number three executive) left the firm after a highly publicized altercation with Eisner (and subsequently formed Dreamworks with Stephen Spielberg and David Geffen). This uncertainty created concern among major shareholders. b)

Employee information systems or skills inventory contains information on each employee‘s education, skills, experience, and career aspirations; usually computerized.

Group Exercise: Have students brainstorm examples of the most important information that should be included in an employee information system or skills inventory. c)

3.

Forecasting the external supply of labor is a different problem altogether. Planners must rely on information from outside sources such as state employment commissions, government reports, and figures supplied by colleges on the number of students in major fields.

Matching human resource supply and demand requires managers to plan and deal with predicted human resources shortfalls or overstaffing. If hiring is needed, supply

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forecasts helps managers plan how to recruit, based on whether the type of person needed is readily available for scarce in the labor market. Temporary workers help managers gain some extra flexibility. If overstaffing is expected, the main options are transferring extra employees, not replacing those who quit, encouraging early retirement, and laying people off.

B.

Recruiting Employees Recruiting is the process of attracting qualified individuals to apply for open jobs.

1.

Internal recruiting considers current employees as applicants for higher-level jobs in the organization. Promotion from within can build morale and keep high-quality employees from leaving the firm. One disadvantage is the ripple effect. When an employee moves to a different job, someone must fill their old job.

Teaching Tip: Ask students to recount any of their experiences involving internal recruiting. For example, see if any of them have applied for and received a new job within their current organization. If so, explore the various ramifications of that move.

2.

External recruiting attracts persons outside the organization to apply for jobs. The organization should treat all applicants with dignity and strive for a good person-job fit.

Teaching Tip: Most business sectors were expanding through the late 1990s, so many firms were actively recruiting new employees. This pattern is in contrast to the cut backs many firms have been making since 2008.

Teaching Tip: Bring in the ―help wanted‖ section from a local paper and read a few ads to your students. Select ads that reflect a diversity of jobs, companies, and so forth. Use this to illustrate how firms recruit through external sources.

3.

Realistic job previews provide applicants with a real picture of what it is like to perform the job. If applicants have a realistic idea of the job, the person hired will be more likely to remain in the job for a longer period of time.

Teaching Tip: Before they start work, Wal-Mart shows all of its potential new employees a two-hour video illustrating what the job of an entry-level associate is like.

This realistic job preview helps the firm control turnover among its employees.

C.

Selecting Employees 1. The organization wants to select applicants that have a high probability of success on the job. Therefore they gather information about factors that are predictive of future success.

Validation is determining the extent to which a selection device is really predictive of future job performance. There are two basic approaches to validation. a) Predictive validation involves collecting the scores of employees or applicants on the device to be validated and correlating their scores with actual job performance. b) Content validation uses logic and job analysis data to establish that the selection device measures the skills needed for successful job performance. The most critical part of content validation is a careful job analysis.

2. There are many selection methods. a) Application blanks require applicants to provide background information about themselves; generally used to decide whether the candidate merits further evaluation.

Management 12e by Ricky W. Griffin Teaching Tip: If possible, obtain a blank employment application and discuss its content with your students. Point out what it asks (e.g., education and experience) and what it does not ask (e.g., gender, ethnicity). b) c)

Tests of ability, skill, aptitude, or knowledge that is relevant to the job are usually the best predictors of job success.

Interviews are a popular selection device but a poor predictor of job success.

Discussion Starter: Discuss with your students some of their own experiences (positive and negative) with employment interviews. d)

Assessment centers are a popular method used to select managers and current employees for promotion. The assessment center provides a content-valid simulation of key parts of a managerial job that lasts two to three days. A variety of techniques (for example, interviews or tests) are included in the assessment.

Extra Example: Tenneco is an example of a firm that makes frequent use of assessment centers to identify and select managers for promotion to higher levels in the organization. e)

Other techniques include polygraph tests, physical exams, drug tests, and credit checks.

Management Update: The use of polygraph tests today is highly regulated and can be used only for hiring certain kinds of employees (e.g., police officers).

Extra Example: Another increasingly popular selection test today is honesty tests.

Organizations are finding that such tests are surprisingly good predictors of an individual‘s ethics and honesty in the workplace.

III. DEVELOPING HUMAN RESOURCES Regardless of how effective a selection system is, most employees need additional training if they are to grow and develop in their jobs. Evaluating their performance and providing feedback are also necessary.

A.

Training and Development 1. Training occurs when the firm teaches operational or technical employees how to do the job for which they were hired.

Global Connection: Japanese firms spend far more on training than typical U.S. firms.

Extra Example: Chaparral Steel emphasizes training. New employees without a high school degree must commit to three years of training (both general education and jobrelated), which takes place two nights a week for two hours a night. High school graduates must commit to two years of job-related training on the same schedule.

Extra Example: American Airlines uses a mock airplane cabin to train its flight crews.

Trainers play the roles of passengers, observe how flight crew members handle various assignments and problems, and then provide feedback.

Extra Example: American Airlines also uses flight simulators to help train its pilots, especially for emergency situations.

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2.

Development occurs when a firm teaches its managers and professionals the skills needed for both present and future jobs.

Teaching Tip: Many business schools have on-site management or executive development centers. Among the most noteworthy are those at Northwestern, Stanford, the University of Pennsylvania, and the University of Michigan. Note whether your school has a center or conducts similar programs for managers.

3.

Firms usually have a training plan, which consists of several steps. a) Assessing training needs is the first step, and it determines what training is needed. b) Managers must select the methods they will use for training. The most important consideration of method is the content of the training material. Common methods include lecture, reading, role-playing, on-the-job training and simulation. Webbased and other electronic training methods are becoming more popular. Some firms have developed a corporate university, which is a company-owned, selfcontained training facility.

Extra Example: Microsoft has gone even further in its training and development programs. It provides extensive training on-site and aids workers in attending advanced training and higher education. It even refers to its work site as a ―campus‖ and provides college-like amenities, such as art museums and sports fields. c)

B.

Managers must then evaluate the effectiveness of training. Typical evaluation approaches include measuring one or more relevant criteria before and after the training, and determining whether the criteria changed. Performance measures collected when the trainee is on the job are the most important.

Performance Appraisal Once employees are trained and settled into the job, one of management‘s next concerns is performance appraisal. Performance appraisal is a formal assessment of how well employees are doing their jobs.

Teaching Tip: Most colleges and universities use teaching evaluations at the end of the semester. Note for your students that this is a form of performance appraisal through which they are evaluating your performance as a teacher.

Extra Example: Disney and American Express each use a performance appraisal system in which supervisors randomly monitor calls between customer service representatives and customers. The supervisors note positive and negative aspects of how representatives handle various calls and provide feedback to them after the calls have been completed.

1.

Common appraisal methods usually fall into one of two types: objective and judgmental. a) Objective measures include actual output, scrap rate, dollar volume of sales, or any other concrete measure of performance.

May be contaminated by ―opportunity bias‖ is some persons have a better chance to perform than others.

The special performance test assesses each employee under standardized conditions. This eliminates opportunity bias but must be combined with other methods to provide a complete picture of performance. b) Judgmental methods require a manager to rate or rank the employees who report to him or her.

Ranking compares employees directly with one another and orders from best to worst.

Management 12e by Ricky W. Griffin

c)

Rating differs in that it compares each employee with a fixed standard rather than with other employees.

One very useful method is the Behaviorally Anchored Rating Scale (BARS), is a sophisticated rating method in which supervisors construct a rating scale associated with behavioral anchors. Can be effective but costly.

Teaching Tip: If possible, obtain a copy of a graphic rating scale used to measure performance. Display it for students, noting how it is used and its strengths/weaknesses.

Group Exercise: Have small groups of students develop sample graphic rating scales that you could use to assess their performance.

Teaching Tip: Note the BARS displayed in Figure 13.3 in the text. Point out to your students that the anchors reflect example behaviors for each scale point.

Extra Example: An extension of the BARS that some firms are trying is called a Behavioral Observation Scale, or BOS. Like BARS, a BOS uses behavioral anchors, but also provides an assessment of the frequency with which various behaviors are exhibited.

2.

C.

In any kind of rating or ranking system, errors or biases can occur. a) Recency error can occur when an evaluator makes a judgment based on only the most easily recalled recent performance. b) Halo error occurs when an evaluator allows the worker‘s performance in one dimension of the job to ‗spread‘ to all dimensions. c) One way to reduce errors is the 360-degree feedback. This is a performance appraisal system in which managers are evaluated by everyone around them—their boss, their peers, and their subordinates, giving a more complete picture of true performance.

Performance Feedback The final step in the performance appraisal system is giving feedback to subordinates about their performance. Individuals meet privately with the evaluator and discuss the appraisal.

Teaching Tip: Providing performance feedback is often a difficult undertaking for many managers. This is especially true when the feedback is negative and/or when there are strong personal feelings between the supervisor and the subordinate.

IV. MAINTAINING HUMAN RESOURCES After attracting and developing an effective workforce, organizations must maintain that workforce.

To do requires effective compensation and benefits as well as career planning.

A.

Determining Compensation Compensation is the financial remuneration given by the organization to its employees in exchange for their work. There are three basic forms of compensation. Wages are hourly compensation, while salary is pay for total contribution, not just hours worked. Incentives are pay tied to specific performance. Sales commissions and bonuses are the most common.

1.

The wage-level decision is a management decision about whether the firm wants to pay above, at, or below the going rate for labor in the industry or the geographic area. If a company wants a reputation of a ‗wage leader‘, they will pay more. The level of

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unemployment affects wage levels. Pay declines when labor is plentiful. Managers use wage surveys conducted either in-house or by outside organizations.

Extra Example: Wal-Mart has a corporate policy of never paying anyone the minimum wage. Even if it is only a token amount (perhaps only 25 cents an hour more), the firm wants its employees to know they are being paid more than the legal minimum.

2.

Wage structures are usually set up through a procedure called job evaluation—an attempt to assess the worth of each job relative to other jobs. The simplest method for creating a wage structure is to rank jobs from those paid the most to those paid the least.

Jobs of equal value are grouped into wage grades for ease of administration.

Discussion Starter: CEO compensation is a controversial issue. Ask students whether top managers are worth hundreds or thousands of times the average worker‘s salary.

3.

Individual wage decisions concern how much to pay each employee in a particular job.

Systems for setting individual rates include seniority, initial qualifications, or merit.

Extra Example: Professional sports teams provide a good source of examples to illustrate individual wage decisions. Some players, like Aaron Rodgers of the Green Bay Packers, are paid millions of dollars, whereas others, such as third-string defensive backs, are paid much less.

B.

Determining Benefits Benefits are things of value (other than compensation) provided by the organization to its workers such as sick leave, insurance, vacation, holidays, pension plans, and unemployment compensation. Sometimes called indirect compensation.

1.

2.

Recently, organizations have begun to offer nontraditional benefits in an effort to attract skilled workers. Nontraditional benefits can include health club memberships, on-site childcare, legal assistance, and mortgage assistance.

Cafeteria benefits plans allow workers to choose additional benefits on top of some basic benefits provided to all. Thus, a working parent can add daycare benefits while a childless worker may choose more vacation time instead.

Management Update: Benefit costs—especially for healthcare—are becoming an increasingly critical area of concern for many organizations.

Teaching Tip: Summarize for students the kinds of benefit options that are provided to faculty at your college or university.

C.

Career Planning Career planning involves helping the employee find an appropriate career path. It can benefit the company and the employee.

Extra Example: General Electric and Xerox are both recognized for having outstanding career planning programs for their employees.

V.

MANAGING LABOR RELATIONS Labor relations is the process of dealing with employees who are represented by a ―union.‖ Union membership was at its largest from 1940-1955 when it declined steadily for several reasons: (1) increased standards of living made union membership seem less important; (2) traditionally unionized industries in the manufacturing sector began to decline; and

Management 12e by Ricky W. Griffin (3) the globalization of business operations caused many unionized jobs to be lost to foreign workers.

Managing labor relations is an important part of HRM. Teaching Tip: Note for your students the relative strength and importance of unions in local and regional business. For example, unions tend to be stronger and more prevalent in the north and northeast and less prevalent in the south and southwest.

A.

How Employees Form Unions 1. Employees must be interested in having a union.

2. Thirty percent of employees must indicate their interest by signing authorization cards. If thirty percent or more of the potential bargaining unit sign cards, then an election can be held. Bargaining units consist of all employees who will be eligible to vote in the election and to join and be represented by the union if one is formed.

3. The National Labor Relations Board holds a secret-ballot election.

4. If a simple majority of those voting agrees to the union, it becomes certified.

5. The union recruits members and elects officers.

B.

Collective Bargaining Collective bargaining is used to reach an agreement on a labor contract between management and the union that is satisfactory to both parties.

Labor contracts are enforced by the grievance procedure. If an employee feels mistreated, he or she files a grievance to correct the problem, and successively higher levels of the organization attempt to correct the problem. Arbitration is the highest level.

Global Connection: Labor relations in England tend to be much more antagonistic than is currently the case in the United States. English unions are often affiliated with political parties, and strikes tend to be very common.

VI. NEW CHALLENGES IN THE CHANGING WORKPLACE The chapter concludes with a look at two of the most important HRM issues today.

A. Managing Knowledge Workers Employees traditionally added value to organizations because of their experience. In the ―information age‖ of today, employees add value because of what they know.

1. Knowledge workers are employees whose contributions to an organization are based on what they know. They provide special challenges for the HR manager. They tend to work in high-technology firms are usually experts in some abstract knowledge base.

They often like to work independently and tend to identify stronger with their profession than with the organization.

2. Knowledge workers are increasingly in demand as technical fields grow in importance, but these employees require extensive and highly specialized training. They also require continued training as the ―half-life‖ of a technical education in engineering is about three years. Failure to update skills may result in the loss of a competitive advantage.

3. Even though overall demand for labor has slumped, the demand for knowledge workers remains strong. As a result, organizations must pay them enough to keep them. High starting salaries and sign-on bonuses are common.

B. Contingent and Temporary Workers 1. A contingent worker is anyone not employed full or part time. They are independent contractors, temporary workers, leased employees, or simply part-time workers.

Currently about 13 percent of the U.S. workforce fits into this category.

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2.

Use of these workers increases flexibility, but it also makes planning more challenging and can be very costly. Rather than call in workers sporadically, organizations try to bring in specified numbers for well-defined periods of time. Managers must understand the advantages and disadvantages of using contingent workers and realistic expectations.

Managers must also carefully assess the real cost of using contingent workers. Finally, managers must fully understand their own strategies and decide in advance how they intend to manage temporary workers, focusing on integrating them into the organization.

Management 12e by Ricky W. Griffin

END OF CHAPTER QUESTIONS Questions for Review 1.

Describe the steps in the process of human resource planning. Explain the relationships between the steps.

The first step is job analysis, in which the content and requirements of each of the organization‘s jobs is defined. Then human resource managers must forecast the organization‘s labor needs and supply in each job by looking at internal and external information. Finally, the demand and supply of workers in each job must be matched, which can involve increasing or decreasing the number of workers.

2.

Describe the common selection methods. Which method or methods are the best predictors of future job performance? Which are the worst? Why? Common selection methods include application blanks in which applicants provide factual information about their background and experiences. Test may range from skills-based to personality tests. Interviews are another technique. Assessment centers provide realistic tasks for the applicant to complete under observation. The best predictors include assessment center and tests if the assessments are related to future job requirements. Application blanks are only able to obtain limited information. Interviews are often the worst indicators of job performance because of interviewer biases and lack of relation to job requirements.

3.

Compare training and development, noting any similarities and differences. What are some commonly used training methods?

Training and development both involve teaching skills to employees. However, training focuses on operational or technical employees and on their current job needs. Development is typically offered to managers and professionals and often is more future-oriented.

4.

Define wages and benefits. List different benefits that organizations can offer. What are the three decisions that managers must make to determine compensation and benefits? Explain each decision.

Wages are one type of compensation and refer to the hourly compensation paid to operating employees. Benefits include everything of value that organizations use to reward employees except compensation. Benefits could include such things as leave time, insurance, pensions, dependent care, free meals or use of gym facilities, and paid parking, and it may also include unusual or innovative rewards. The wage-level decision asks a firm to choose whether to offer compensation that is above, at, or below the average wages for that industry and region. The wage-structure decisions require choices about the relative worth of different tasks to the organization. Individual wage decisions are made for each person. They are influenced by the firm‘s wage-level and wagestructure decisions as well as an evaluation of an individual‘s experience, qualifications, and merit.

Questions for Analysis 5.

The Family and Medical Leave Act of 1993 is seen as providing much-needed flexibility and security for families and workers. Others think that it places an unnecessary burden on business. Yet another opinion is that the act hurts women, who are more likely to ask for leave, and shuffles them off to a low-paid ―mommy track‖ career path. In your opinion, what are the likely consequences of the act? You can adopt one of the viewpoints expressed above or develop another. Explain your answer.

Some students will describe the benefit to workers, organizations, and society that come with the provision of leave to workers experiencing family or medical emergencies. Other students will argue that organizations should not bear the costs associated with the leave—that workers

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themselves or society as a whole should do so instead. Still others are likely to focus on the differential usage of the Act by men and women, which tends to put female workers at a disadvantage in their careers.

6.

How do you know a selection device is valid? What are the possible consequences of using invalid selection methods? How can an organization ensure that its selection methods are valid?

The information gained from a selection device must be able to predict future job success, which is known as validation. There are two forms of validation: (1) predictive validation—collecting information from employees or applicants and correlating it with actual job performance and (2) content validation—assessing actual job skills (determined by a job analysis) in a ―work-sample testing‖ of applicants to measure their skill level. The use of invalid selection methods would tend to exclude applicants who would be high-performers if hired and to cause the organization to instead hire workers who do not have the characteristics necessary for success. Validity can best be achieved by ensuring that all predictors used for selection are performance based.

7.

In a right-to-work state, workers are permitted to decide for themselves whether to join a union. In other states, workers may be required to join a union to obtain certain types of employment. If you live in a right-to-work state, do you agree that the choice to join a union should be made by each individual worker? If you do not live in a right-to-work state, do you agree that individuals should be required to join a union? Finally, if the choice were yours to make, would you join a union? Explain your answers. (Hint: Right-to-work states are generally in the South, Midwest, and parts of the West. If you do not know whether you live in a right-to-work state, visit the National Right to Work Legal Defense Foundation website at www.nrtw.org/rtws.htm.)

Students‘ opinions will vary, of course. Those in favor of right-to-work legislation may point out that the law tends to create jobs, provides more control to organizations, and rewards individual performance, which can increase incentives for hard work, training, and so on. Those who do not favor right-to-work legislation will probably focus on the uneven balance of power between an organization and an individual worker, and they will see unions as one way of redressing that imbalance. Students‘ desire to join a union may be tied to their theoretical or political leanings, or it may be motivated by financial considerations.

Questions for Application 8.

Choose three occupations that interest you. (The Labor Department’s website has a full list, if you need help choosing.) Then access the Department of Labor, Bureau of Labor Statistics, online Occupational Outlook Handbook at www.bls.gov/oco. What are the job prospects like in each of these fields? Based on what you read at the website, do you think you would enjoy any of these occupations? Why or why not?

Clearly, students‘ answers will vary. Here is an example response: ―One occupation that interests me is that of a public accountant. According to the BLS, the demand for accountants will continue to grow at about an average rate, keeping pace with the growth in the economy. I would enjoy working as an accountant because I enjoy detailed work, my math skills are good, and I like using computers. I might not like the relative isolation that is part of an accounting career, so I would probably tend to seek a position that involved a lot of client contact.‖

9.

Consider a job that you have held or with which you are familiar. Describe how you think an organization could best provide a realistic job preview for that position. What types of information and experiences should be conveyed to applicants? What techniques should be used to convey the information and experiences?

Management 12e by Ricky W. Griffin Students will offer a variety of answers to this question. Their responses should include a description of the most important skills, traits, or experiences that a qualified applicant should have and an explanation of how those characteristics can be tested and observed through the use of a simulated job task or situation. For example, an applicant for a management consulting position might be required, in a short period of time and under pressure, to perform a financial and strategic analysis of a case study and present their conclusions to a mock ―board of directors.‖ 10. Contact a local organization to determine how that organization evaluates the performance of employees in complex jobs such as middle- or higher-level manager, scientist, lawyer, or market researcher. What problems with performance appraisal can you note?

Most of the answers will revolve around the individual‘s contributions to the department or organization. Actual outcomes will be more important to the evaluation than job behaviors. For example, two scientists may have very different work habits but both may provide the company with new and creative projects. Ask the students why this occurs. One of the problems that may be encountered is the period of time that these individuals are allowed to work before they develop an acceptable project. This can lead to a number of equity concerns among people in the same department or area.

END OF CHAPTER EXERCISES Building Effective Decision-Making Skills I.

Purpose This decision-making exercise is designed to provide students with practice in data analysis and choice in issues related to career planning.

II.

Format This exercise should be performed by individual students outside of class and should take about 30 minutes to complete. Questions 6 and 7 may be used as the basis of an in-class discussion.

III. Follow-Up A. Access a summary of the Department of Labor‘s National Compensation Survey at http://stats.bls.gov/ncs/ocs/sp/ncbl0449.pdf. (If the page has been moved, search by the survey title.) Find the detailed data related to the occupation that you regard as your most likely career choice when you graduate. Then, locate detailed data about two other occupations that you might consider -- one with a salary that‘s higher than that of your number-one career choice and one with a salary that‘s lower.

B. Next, record the hourly salary data for each of your three choices, and then use the hourly salary to project an expected annual income. (Hint: Full-time jobs require about 2,000 hours annually.)

C. Based purely on salary information, which occupation would be the ―best‖ for you?

Students‘ answers will vary, depending on the occupations they choose and the information they find. The students will agree that, if salary is the only variable under consideration, higher salaries are preferable to lower ones.

D. Now, go to www.bls.gov/oco and access job descriptions for various occupations. Review the description for each of the three career choices that you‘ve already investigated.

E. Based purely on job characteristics, which occupation would be the ―best‖ for you?

Again, answers will vary, based on the occupations chosen and the students‘ preferences. Every student should be able to find an occupation that would be interesting and rewarding to them.

F.

Is there any conflict between your answers to Questions 3 and 5? If so, how do you plan to resolve it?

For some students, the highest-paid occupation also has the most desirable other characteristics. However, some students will find that their most desired jobs are not the most

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G.

highly-paid. Students will have a variety of answers to the second part of the question ranging from plans to accept lower pay for a more desirable job to plans to ―put up with‖ an undesirable job in order to achieve more pay. Creative solutions are possible, such as holding two jobs or working in a desirable field as a volunteer or part-time worker. It may be instructive for students to hear each others‘ answers to this question because it may suggest new, creative solutions to them.

Are there any job characteristics that you desire strongly enough to sacrifice compensation in order to get them? What are they? What are the limits, if any, on your willingness to sacrifice pay for these job characteristics?

Opinions will vary. Every student, however, will identify some ―floor‖ of acceptable pay and would refuse to accept any job, even the most desirable, if that minimum is not met. For some students, the floor may be relatively high, while for others it would be barely enough to cover survival essentials.

Building Effective Technical Skills I.

Purpose This exercise will develop the students‘ understanding of the issues that must be considered when selecting job candidates.

II.

Format This technical skills exercise is best performed individually and should take about 20–30 minutes.

III. Follow-Up A. Identify the most basic skills needed to perform each of the two jobs effectively.

B. Identify the general indicators or predictors of whether a given individual can perform each job.

Answers will vary depending on the jobs selected. Depending on which skills are mentioned in Question 1, Question 2 answers might include prior job experiences, formal education, performance on skills assessments, and personality traits, among others.

C. Develop a brief set of interview questions that you might use to determine whether an applicant has the qualifications for each job.

The questions will depend upon the answers to Question 2. Most students will mention asking about prior jobs, education, skills, and traits.

D. How important is it for you, as a manager hiring an employee to perform a job, to possess the technical skills to perform the job that you‘re trying to fill?

Most students will reply that it is not important to have the technical skills. Managers often do not have the skills, but they are able to select candidates based on impartial assessments of those skills such as prior experiences or test scores. However, mangers need to be informed about which skills are needed; otherwise, they will not be able to select effectively.

MANAGEMENT AT WORK The Benefits of the ACA (aka Obamacare) The case briefly describes the 2010 Patient Protection and Affordable Care Act (ACA, aka Obamacare).

This case specifically centers on two provisions of the ACA and Walmart‘s reaction to the new law. The provisions are that as of January 2014, Americans must carry health insurance or face a tax penalty and that companies must offer health coverage to those who work at least 30 hours per week. Walmart, predictably cut all health care benefits for workers who worked fewer than 30 hours per week. Some experts see this as the first step toward moving away from employer provided healthcare.

Discussion Starter: Ask students if they are covered under the ACA or know anyone who is covered under the ACA. Do they feel this is good legislation?

Management 12e by Ricky W. Griffin 1.

Case Question 1: What about you? What ―things of value‖ do you want most in a benefits package offered by an employer? If you were offered a ―cafeteria benefit plan,‖ what additional or enhanced benefits would you choose? Why? Student‘s answers will vary according to the things they value. Some might value the optical plan if they wear glasses, or the dental plan may be important if they visit a dentist often.

2.

Case Question 2: Do you have healthcare? If so, what part of the coverage best satisfies your needs? Do you need any kind of coverage that you can‘t get or can‘t afford? Do you think you might be better off if you got your coverage under the Affordable Care Act? Again, answers will vary widely with this question. Some may feel that choosing their doctor is an important aspect of the coverage while others feel the prescription coverage is the most important.

Some students may already be covered under the ACA and feel this is their best option.

3.

Case Question 3: In your opinion, what kind of healthcare coverage does the average American worker (and his or her family) need? Is there any level of coverage to which, in your opinion, the average American worker should be entitled at a reasonable cost? What sources should provide the money to pay for this coverage?

Due to the question asking for opinions, answers will vary widely.

4.

Case Question 4: Person for person, according to Consumer Reports, healthcare in the U.S. costs about twice as much as it does in the rest of the developed world. In 2000, the average family health plan costs U.S. companies $6,438 per worker; by 2013, that figure had reached $16,351. In the same period, average wages increased 20 percent (just barely keeping up with an inflation rate of 18 percent) while the cost of family health coverage went up by 87 percent. ―Higher healthcare costs,‖ the report reminds us, ―mean higher premiums for everyone.‖* Why do you think healthcare costs are so high in the U.S.? How are healthcare prices set? What does the former CEO of one giant health maintenance organization mean when he says that healthcare ―prices are made up depending on who the payer is‖?

Answers will vary widely due to students‘ opinions and experiences with the ACA and the medical community. *‖It‘s Time to Get Mad about the Outrageous Cost of Healthcare,‖ Consumer Reports, September 2014, http://consumerreports.org, on January 27, 2015.

CHAPTER 14

Basic Elements of Individual Behavior in Organizations Part Five, THE LEADING PROCESS, covers the third basic managerial function, the leading process.

Part Five consists of five chapters. Chapter 14 introduces basic elements of individual behavior in organizations. Chapter 15 covers employee motivation and Chapter 16 is devoted to leadership.

Interpersonal processes and communication are the topics of Chapter 17. Chapter 18 covers group and team processes in organizations.

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CHAPTER SUMMARY Chapter 14 covers the basic elements of individual behavior in organizations. The chapter first investigates the psychological nature of individuals in organizations. The next sections introduces the concept of personality and discusses several important personality attributes that can influence behavior in organizations. The text then examines individual attitudes and their role in organizations. The role of stress in the workplace is discussed, followed by a discussion of individual creativity. Finally, the chapter concludes by describing a number of basic individual behaviors that are important to organizations.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Explain the nature of the individual–organization relationship.

2.

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

3.

Discuss individual attitudes in organizations and how they affect behavior.

4.

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

5.

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

6.

Describe creativity and its role in organizations.

7.

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

MANAGEMENT IN ACTION Engaging with the Company Garbage The opening case discusses organizations sustainable management programs. Research shows that employees find value in and even put forth discretionary effort towards programs they feel are meaningful. Organizational commitment is greater when a company fosters a combination of top-down leadership and bottom-up empowerment in its sustainability practices. As a nice by-product, companies are finding they save money and may even make money from their sustainability efforts.

Discussion Starter: Ask students what the sustainability practices are in their work environment. Are there handy recycling bins? Do employees use the recycling program?

Do students feel these are worthy programs? Do they feel such programs are a nuisance, a sort of social pressure?

Management 12e by Ricky W. Griffin

LECTURE OUTLINE I.

UNDERSTANDING INDIVIDUALS IN ORGANIZATIONS A.

The Psychological Contract 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. It is neither written on paper nor are the terms negotiated.

1.

2.

3.

4.

The individual provides the organization with contributions such as effort, skills, ability, time, loyalty, and so forth.

In return for these contributions, the organization provides inducements to the individual such as pay and career opportunities, (tangible), job security, or status (intangible).

If both the individual and the organization perceive the contract is fair and equitable, they will be satisfied to continue the relationship. If either party feels an imbalance or inequity, they may initiate a change.

A basic challenge faced by the organization is to manage psychological contracts.

Teaching Tip: Discuss with your students the nature of the psychological contract that exists between you as the instructor and them as students.

Discussion Starter: Solicit ideas regarding unusual or novel individual contributions and/or organizational inducements that might be part of a psychological contract.

B.

The Person–Job Fit Person–job fit is the extent to which the contributions made by the individual match the inducements offered by the organization.

There are several possible reasons for an imperfect person–job fit.

1. Organizational selection procedures are imperfect.

2. Both people and organizations change.

3. Each individual is unique.

Group Exercise: Have small groups of students discuss what they consider a ―perfect‖ job. Ask them to identify similarities and differences among the various jobs suggested.

C.

The Nature of Individual Differences Individual differences are personal attributes that vary from one person to another.

Individual differences may contribute to or detract from the job depending on the circumstances. Attempting to consider both individual differences and contributions in relation to inducements and contexts is a major challenge for organizations.

Cross-Reference: Note the role of organization culture, as described in Chapter 3, in defining psychological contracts and person–job fit and how individual differences might cause one person to fit while another person will not fit into that same organization at all.

Discussion Starter: Ask students if they can recall any instances in which they observed one person who really liked a particular job and another person who strongly disliked the same job. Ask them to speculate on why the differences occurred.

II.

PERSONALITY AND INDIVIDUAL BEHAVIOR

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

A.

The ―Big Five‖ Personality Traits Contemporary researchers have identified five fundamental personality traits that are especially relevant to organizations. Commonly called the ―Big Five‖ personality traits, it is a popular personality framework based on five key traits.

1.

2.

3.

4.

5.

Agreeableness refers to a person‘s ability to get along with others.

Conscientiousness is the number of things a person can effectively work on at one time.

Negative emotionality refers to which a person is poised, calm, resilient, and secure.

Extraversion is a person‘s comfort level with relationships.

Openness refers to a person‘s rigidity of beliefs and range of interests.

Cross-Reference: Note that in Chapter 13 we discussed how some organizations attempt to measure the personality of job applicants as part of the selection process.

Group Exercise: Ask students to discuss with each other how they might see themselves on each of the ―big five‖ traits.

Discussion Starter: Ask students to speculate as to how easy or hard it might be to measure these five personality traits with a questionnaire.

B.

The Myers-Briggs Framework Based on the work of Carl Jung, this framework assesses personality along four key dimensions.

1.

2.

3.

4.

Extroversion (E) versus Introversion (I). Extroverts get their energy from being around other people, while introverts are worn out by others and need solitude to recharge their energy.

Sensing (S) versus Intuition (N). The Sensing type prefers concrete things, while intuitives prefer abstract concepts.

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

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

Teaching Tip: Direct students to the interpersonal skill-building exercise for this chapter for information about the Myers-Briggs framework and for an online assessment tool.

C.

Other Personality Traits at Work Beside the Big Five and the Myers-Briggs framework, there are other personality traits that influence behavior in organizations. Among the most important are locus of control, selfefficacy, authoritarianism, Machiavellianism, self-esteem, and risk propensity.

1.

Locus of control refers to the degree to which an individual believes that his or her behavior has a direct impact on the consequences of that behavior. a) Internal locus of control is a belief that success or failure results from one‘s own behavior.

Extra Example: Successful top managers appear to have an internal locus of control. b)

External locus of control is a belief that success or failure results from fate, chance, luck, or the behavior of others.

Management 12e by Ricky W. Griffin Teaching Tip: Many different questionnaires exist that purport to measure locus of control. Obtain a copy of one of these and have your students complete it. Be careful not to make actual attributions based on in-class results. Rather, use the results to discuss the nature of locus of control and whether students see the results as being valid.

2.

3.

Self-efficacy is an individual‘s beliefs about her or his capabilities to perform a task.

Authoritarianism is the extent to which an individual believes that power and status differences are appropriate within hierarchical social systems like organizations.

Discussion Starter: Ask students whether they see themselves as having high or low levels of authoritarianism.

Discussion Starter: Ask students to identify jobs for which different levels of authoritarianism might be more or less appropriate.

4.

Machiavellianism is behavior directed at gaining power and controlling the behavior of others.

Discussion Starter: Ask students for examples of individuals they know or have known who appeared to be high on the Machiavellianism scale.

5.

6.

Self-esteem is the extent to which a person believes that he or she is a worthwhile and deserving individual.

Risk propensity is the degree to which an individual is willing to take chances and make risky decisions.

Discussion Starter: Ask students to comment on their relative level of risk propensity.

Ask them to suggest jobs in which high levels of risk propensity are desirable, and jobs in which high levels of risk propensity are less desirable.

D.

Emotional Intelligence Yet another way to think about personality at work is the concept of emotional intelligence or EQ. This is the extent to which people are self-aware, manage their emotions, motivate themselves, express empathy for others, and possess social skills.

There are five dimensions of EQ. 1.

2.

3.

4.

5.

Self-awareness refers to a person‘s capacity for being aware of how they are feeling.

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

Motivating oneself refers to a person‘s ability to remain optimistic in the face of failure.

Empathy refers to a person‘s ability to understand how others are feeling.

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

Preliminary research suggests that persons with high EQ may perform better than others, especially in jobs requiring a high degree of interpersonal interaction and involve influencing or directing the work of others.

EQ appears to be something this not biologically based but can be developed.

III. ATTITUDES AND INDIVIDUAL BEHAVIOR Attitudes are complexes of beliefs and feelings that people have about specific ideas, situations, or other people. Attitudes are made up of three components. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. .

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The affective component reflects feelings and emotions that an individual has toward a situation.

The cognitive component is derived from perceived knowledge that an individual has about a situation.

The intentional component reflects how an individual expects to behave toward or in the situation.

Extra Example: Select a given attitude that a student might hold (e.g., a positive attitude toward a particular academic department). Illustrate its three parts (e.g., I like that department; the professors do a good job, and the courses they teach are relevant; I will take another course from that department).

The conflict that individuals may experience among their own attitudes is called cognitive dissonance.

Extra Example: Students may experience cognitive dissonance as part of their academic programs. For example, when they begin taking courses in their intended major, they may find they do not like that field after all. Ask students about their experiences.

A.

Work-Related Attitudes 1. 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.

2. Organizational commitment is an attitude that reflects an individual‘s identification with and attachment to the organization itself.

3. Organizational engagement is the extent to which an employee sees him or herself as part of the organization, actively looks for ways to contribute to the organization, and is involved with the organization in multiple ways.

Extra Example: Firms that have recently downsized often find that the downsizing has led to employees experiencing lowered organizational commitment and job involvement.

Group Exercise: Have students think of attitudes they have held for a long time, and discuss what might be necessary to get them to change those attitudes. Ask them to identify attitudes they have changed and to note why those changes took place.

B.

Affect and Mood in Organizations 1. Some people seem to have a higher degree of positive affectivity. They have a tendency to be relatively upbeat and optimistic, have an overall sense of well-being, see things in a positive light, and seem to be in a good mood.

2. Others, those with negative affectivity, have a tendency to be generally downbeat and pessimistic, see things in a negative way, and seem to be in a bad mood.

Discussion Starter: Ask students to identify and discuss characters from popular television shows who seem to have a lot of positive and/or negative affectivity.

IV. PERCEPTION AND INDIVIDUAL BEHAVIOR Perception is the set of processes by which an individual becomes aware of and interprets information about the environment.

A.

Basic Perceptual Processes 1. Selective perception is the process of screening out information that we are uncomfortable with or that contradicts our beliefs. Selective perception is helpful only if our basic perception is accurate, if not it can become quite detrimental.

Management 12e by Ricky W. Griffin 2.

Stereotyping is the process of categorizing or labeling people on the basis of a single attribute. Common attributes on which people stereotype are race, gender, and age.

Extra Example: Note that if the newspaper featured a headline story about a big increase in tuition at your school, most students would be aware of it. However, assuming that was not the case, fewer students can recall the headline because it was less relevant to them.

Discussion Starter: Ask students to identify specific examples, other than those in the text, to illustrate positive and negative examples of selective perception and stereotyping.

B.

Perception and Attribution Attribution is a mechanism through which we observe behavior and then attribute causes to it.

The observed behavior may be our own or that of others.

Attribution occurs as a result of three forces.

1.

2.

3.

V.

Consensus is the extent to which other people in the same situation behave the same way.

Consistency is the extent to which the same person behaves in the same way at different times.

Distinctiveness is the extent to which the same person behaves in the same way in other situations.

STRESS AND INDIVIDUAL BEHAVIOR A.

Stress is an individual‘s response to a strong stimulus, called a stressor.

Teaching Tip: Students can easily relate to the topic of stress.

B. C.

D.

Stress generally follows a cycle referred to as the General Adaptation Syndrome, or GAS. The stages in the GAS are alarm, resistance, and exhaustion.

Stress is not all bad. The absence of stress may lead to stagnation. An optimal stress level can motivate. Too much stress can have negative consequences. Stress can be caused by ―good‖ as well as ―bad‖ things.

Type A individuals are competitive, devoted to work, and have a strong sense of time urgency.

Type B individuals are less competitive, less devoted to work, and have a weaker sense of time urgency. Type B people are less likely to experience stress.

Discussion Starter: Ask whether students consider themselves to be Type A or Type B. Cross-Reference: Note that the Type A/B distinction parallels the discussion of individual differences earlier in this chapter. If there was not this separate section on stress, Type A/B could have been discussed along with locus of control, self-esteem, and the other personality-based differences.

C.

Causes and Consequences of Stress 1. Work-related stressors fall into one of four categories. a) Task demands are associated with the task itself.

Extra Example: Telemarketer is a job with a high level of task demands-related stress.

Workers must follow a prescribed script, are under intense pressure to make a quota of calls, and often encounter abrupt, negative reactions from the people they call. b) c)

Physical demands are stressors associated with the job setting.

Role demands are stressors associated with roles (discussed fully in Chapter 18).

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Extra Example: When an executive reported for work at the U.S. Bank of Washington on a holiday, he noted that he was the one-hundredth manager to sign in for work that day—a holiday when the bank was officially closed. d)

Interpersonal demands are stressors associated with relationships that confront people in organizations. For example group pressures and norm conformity.

Teaching Tip: While stress can be a trigger for workplace violence, other factors enter in such as organizational culture, the individual‘s background and propensity for violence.

Extra Example: While stress can initiate workplace violence, the fact that violence has occurred subsequently increases stress for other employees.

2.

There are several likely negative consequences of stress. a) Behavioral consequences include detrimental or harmful actions such as smoking, alcoholism, overeating, drug abuse, accident proneness, and violence. b) Psychological consequences of stress include sleep disturbances, depression, family problems, and sexual dysfunction. c) Medical consequences of stress include heart disease, stroke, headaches, backaches, ulcers, and skin conditions.

Global Connection: The Japanese use the word karoshi to refer to death from overwork.

Some experts estimate that karoshi claims as many as 30,000 people a year in Japan. d) e) D.

Individual stress also has direct consequences for businesses, including poor quality work, lower productivity, faulty decision making, absenteeism, and turnover.

Burnout is a feeling of exhaustion that may develop when someone experiences too much stress for an extended period of time

Managing Stress 1. People manage stress through exercise, relaxation, time management, and support groups.

Extra Example: Prayer and meditation are increasingly being used to manage stress.

Discussion Starter: Ask students how they manage their own stress.

2.

Organizations can help employees cope with stress through wellness programs, stress management programs, health promotion programs, and fitness programs.

Discussion Starter: Ask for ideas on how organizations can help workers manage stress.

VI. CREATIVITY IN ORGANIZATIONS Creativity is the ability of an individual to generate new ideas or to conceive of new perspectives on existing ideas.

A.

The Creative Individual Researchers attempt to describe the common attributes of creative individuals. These attributes fall into three categories: background experiences, personal traits, and cognitive abilities.

1.

2.

Creative individuals were raised in environments in which creativity was nurtured.

Creative people share traits of openness, an attraction to complexity, high energy, independence and autonomy, self-confidence, and a strong belief that they are creative.

Management 12e by Ricky W. Griffin 3.

Creative people tend to be intelligent and have divergent and convergent thinking skills.

Divergent thinking is a skill allowing people to see difference among situations, phenomena, or events. Convergent thinking is a skill allowing people to see similarities among situations, phenomena, or events.

Discussion Starter: Ask students to assess their own creativity and/or the creativity of people they know.

Teaching Tip: Stress for students that these individual characteristics tend to be generalizations, not rigid requirements that someone must meet to be deemed creative.

B.

The Creative Process The creative process often follows four distinct stages.

1.

2.

Preparation occurs when an individual is getting ready to be creative and can include education and experiences.

Incubation is a period of low intensity during which the individual takes a break from the problem, allowing it to mature and develop.

Teaching Tip: Point out the adage ―sleep on it‖ often refers to the incubation process.

3.

Insight is the spontaneous breakthrough that allows a new understanding of some problem or situation. It may emerge gradually or suddenly and can be triggered by an external or internal event.

Teaching Tip: Point out for your students that the common visual metaphor of a light bulb over a person‘s head as he or she gets an idea actually shows insight.

Extra Example: Legend has it that Archimedes first coined the phrase ―Eureka!‖ (which means ―I have found it!‖ in Greek) when he achieved a critical insight into a problem while bathing one day. On the downside, he was so excited by his discovery that he then ran naked through the streets of Athens.

4.

C.

Verification follows breakthrough and is used to determining the validity of the insight.

Enhancing Creativity in Organizations Organizations can attempt to promote creativity by making it a part of the firm‘s culture and by integrating creative activities with the reward system.

VII. TYPES OF WORKPLACE BEHAVIOR Workplace behavior is a pattern of action by the members of an organization that directly or indirectly influences organizational effectiveness.

A.

Performance Behaviors Performance behaviors are the total set of work-related behaviors that the organization expects the individual to display. For many jobs, performance behaviors are diverse and may be difficult to assess.

Cross-Reference: Note that the methods of performance evaluation discussed in Chapter 13 focus primarily on measuring workplace behaviors.

B.

Withdrawal Behavior Another important type of work-related behavior is that which results in withdrawal.

1.

Absenteeism occurs when an individual does not show up for work.

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Discussion Starter: Ask students to recall examples of when they were absent from work for reasons that their employer might not have thought of as being legitimate.

2.

Turnover occurs when people quit their jobs.

Discussion Starter: Ask students who have quit one or more previous jobs to recall what caused them to do so.

C.

Organizational Citizenship Organizational citizenship refers to the behavior of individuals that makes a positive overall contribution to the organization. The determinant of organization citizenship behaviors is likely to be a complex mosaic of individual, social, and organizational variables.

D.

Dysfunctional Behavior Dysfunctional behaviors are those that detract from, rather than contribute to, organizational performance. They include absenteeism and turnover but also theft, sabotage, sexual and racial harassment, politicized behavior, and violence.

Teaching Tip: Stress for students that citizenship goes beyond strict productivity.

Extra Example: Note that the person making the highest grade on a test may be the top performer. However, that same person may not always be in class, may contribute little to class, and may come in late and/or leave early. Someone else, however, may attend class more regularly, participate in class discussion more often, always be in class on time, and be willing to sit past class ending time for a few minutes while you finish an important point. This individual may be a better organizational citizen.

END OF CHAPTER 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.

A psychological contract is the overall set of expectations held by an individual with respect to what he or she will contribute to the firm and what the organization, in return, will provide to the individual. Individual contributions include effort, time, ability, skills, and creativity. Organizational inducements include pay and benefits as well as security, status, and opportunities for advancement and learning.

2.

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

Attitudes are made up of an affective, or emotional, component; a cognitive, or intellectual, component; and an intentional component, which reflects expectations about behavior. The three components are inter-related, with each affecting the others. Feelings, thoughts, and intent all play a part in forming attitudes. Cognitive dissonance occurs when one individual‘s attitudes are in conflict. To resolve cognitive dissonance, individuals typically revise one or more attitudes.

3.

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

The steps in the creative process are (1) preparation—getting ready to be creative; (2) incubation— a period of low-intensity or subconscious thought; (3) insight—a spontaneous breakthrough; and (4) verification—determining the validity of the insight. Firms can provide structures and mechanisms

Management 12e by Ricky W. Griffin that improve creativity, such as establishing rewards for innovation or developing a culture in which experimentation and mistakes are not punished.

4.

Identify and describe several important workplace behaviors.

Performance behaviors are the total set of work-related behaviors that the organization expects the individual to display. Absenteeism is when an individual does not show up for work. Turnover behavior occurs when people quit their jobs. Organizational citizenship refers to the behavior of individuals that makes a positive overall contribution to the organization.

Questions for Analysis 5.

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?

Personality testing can increase the person–job fit, providing benefits to the organization. However, personality testing is controversial and will upset some job applicants. It is also very difficult to perform accurately and thus may result in a mismatch between a worker and a job. Finally, there is little scientific evidence to link personality to job fit or future job performance in many cases. Most importantly, managers can work to ensure that there is a link between the personality attributes that are being tested and future job performance. Also, managers can receive training in the accurate interpretation of personality test results.

6.

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 and engagement?

Job satisfaction is likely to be expressed through low turnover and absenteeism, conformance to company policy and cultural norms, sound personal relationships with co-workers, contentment with working conditions and pay, and high job effort and performance. The signs of high commitment are much the same. To improve satisfaction, managers can focus on each of the areas mentioned above such as effective socialization into the firm‘s culture, development of positive working relationships, adequate work conditions and pay, and so on. These actions are also likely to improve commitment.

7.

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‖?

Selective perception can aid in the decision-making process by reducing the amount of information, which increases the manager‘s ability to focus on the truly important data. However, selective perception may inappropriately eliminate information that would be useful, thereby reducing decision quality. One technique calls for group decision making, which would tend to reduce the impact of the individual‘s decision-making biases. Another solution would be the adoption of a process that explicitly requires attention to data that contradicts the manager‘s basic beliefs such as a ―what-if‖ analysis or a devil‘s advocate process.

Questions for Application 8.

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

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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.

This question makes a good experiential exercise. Contributions made by students usually include such things as their attendance, class preparation, class participation, and the tuition and fees they pay to attend. Inducements include such things as a well-organized class, an interesting and effective instructor, and a fair and clear grading system. Students are often surprised to discover the extent to which the intended psychological contract, as developed by the instructor, differs from, and in some cases directly contradicts, the contract as it is perceived by students.

9.

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.

The shoe salesperson may need to be especially friendly, courteous, outgoing, and willing to work on a commission. The toy department manager might need to be well organized, friendly, fond of children, and able to supervise regular workers in the department. The stockroom employee may need to be able to lift heavy boxes and carefully follow instructions.

10. Describe a time when someone displayed each one of the Big Five personality traits at either a very high or a very low level. For example, tell about someone who appeared to be highly agreeable or highly disagreeable. Then tell about the outcomes that person experienced as a result of displaying that particular personality trait. Do the outcomes seem logical; that is, do positive personality traits usually lead to good outcomes and negative traits to bad ones?

Explain your answer.

Clearly, students‘ answers will vary. Students will be able to think of times when the outcomes appeared to be logical, as well as examples in which the consequences seemed illogical.

END OF CHAPTER EXERCISES Building Effective Interpersonal Skills I.

Purpose This exercise introduces students to the Meyers-Briggs personality type framework and then uses those concepts to consider personal relationships between individuals with differing characteristics.

II.

Format Completion of the online test should be done by individuals and will require about 30 minutes outside of class. The follow-up questions may be used as a written assignment or as the basis for an in-class discussion.

III. Follow-Up After the students have determined their four-letter code, help them to discover their two-letter personality type based on the following rule. If the student‘s code has an ―S,‖ look at the last letter and choose either ―SP‖ or ―SJ.‖ If the student‘s code has an ―N,‖ look at the third letter and choose either ―NT‖ or ―NF.‖ Reproduce the following pages for students and hand them out after they have completed the questionnaire.

Teaching Tip: Point out to students that, as a manager, it is just as important to understand the personalities of one‘s superiors and subordinates as it is to understand one‘s own personality. Therefore, it is useful to learn about every personality type.

Management 12e by Ricky W. Griffin A.

How easy is to measure personality?

Students will agree that personality is difficult to measure. Some will point out that selfreported answers to written questions may not reflect one‘s true character, either by intent or ignorance, or do the influence of temporary moods. Also, the interpretation of results depends on the personality of the interpreter, confusing and diluting the power of the tests. In addition, some students will see the questions as ambiguous; others may disagree with the four dimensions of personality used in the Meyers-Briggs test. Finally, students will note that, if an individual resents or fears the testing, results are unlikely to be accurate.

B. C.

Do you feel that the online test accurately assessed your personality?

Why or why not? Share your assessment results and your responses with the class.

Clearly, opinions will vary. Students should not be required to share their individual results if they do not feel comfortable in doing so. You can point out to students that even if they don‘t agree with the personality test results, the results may nevertheless be accurate. In other words, you can remind students that we often don‘t see a true picture of ourselves.

The following information is adapted from Keirsey, David and Marilyn Bates, Please Understand Me. Copyright © 1978 by Prometheus Nemesis Book Company.

SP—the “Artisan” SP‘s are likely to be drawn to professions such as athlete, pilot, soldier, police, firefighter, artist, performer, construction worker, logger, truck driver, corporate raider, entrepreneur, and salesperson. They live in the moment and thrive on crises. Their word is ―Freedom.‖ They love change for its own sake, enjoy physical activity and the out-of-doors, and are impulsive and generous. About 38% of the population of the world are SP‘s.

Strengths as a Manager: As managers, SP‘s are practical. They observe, identify problems, and suggest answers quickly. SP managers are adaptable and flexible, and they welcome change. They are in touch with reality. SP managers are efficient. They are skilled in fixing problems but also in realizing which battles are not worth fighting.

Weaknesses as a Manager: SP managers want action, not talk, which can lead them to neglect the role of thoughtfulness and analysis. They may forget past commitments or just decide that they no longer need to honor those commitments. They can focus too much on the present and lack a long-term vision. To others, they may seem unpredictable or undisciplined.

SJ—the “Guardian” SJ‘s are likely to be drawn to professions such as teaching, ministry, accounting, management, insurance, banking, public office holder, nursing, museum management, and historian. They want to preserve tradition and maintain social order. Their word is ―Duty.‖ They try to be of service to other people and enjoy security. About 38% of the population of the world are SJ‘s.

Strengths as a Manager: SJ managers, above all, value stability. They make decisions easily. They are excellent writers of policy because they understand how rules and traditions can benefit the organization.

SJ managers are patient, persistent, and careful with details. They follow through on commitments. SJ‘s are orderly, punctual, and use common sense.

Weaknesses as a Manager: SJ managers are impatient with delays. They may make decisions too quickly, basing their choices on what‘s worked in the past, without considering each situation‘s unique circumstances. They are slow to notice changes, they and often preserve policies that are no longer needed or are ineffective. To others, SJ‘s may seem unimaginative or rigid.

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NT—the “Rational” NT‘s are likely to be drawn to professions such as scientist, computer scientist, engineering, research, technical trades, financial analyst, economist, technical writer, architect, and inventor. They are driven to learn more and gain better skills, and they push themselves until they achieve perfection. Their word is ―Competence.‖ They enjoy solving problems. About 12% of the population of the world are NT‘s.

Strengths as a Manager: NT managers are the architects of change. They are interested in fundamentals, principles, laws, and systems. They plan and build complex systems and see the relationships between different elements and decisions. They are equally skilled at long-term and short-term solutions.

Weaknesses as a Manager: NT managers excel at planning but not at implementation. As perfectionists, they usually feel that their plans are not executed correctly. Their preference for abstraction can cause NT‘s to neglect concrete reality. They set very high standards that can be too challenging from some workers. NT‘s tend to avoid personal relationships at work, which can make the workplace seem cold and unfriendly to others.

NF—the “Idealist” NF‘s are likely to be drawn to professions such as teaching, ministry, creative writer, mental health therapist, actor, and physician. They enjoy learning more about themselves and other people. Their word is ―Identity.‖ They are very sensitive to their own feelings and those of others. About 12% of the population of the world are NF‘s.

Strengths as a Manager: The management style of NF managers relies on charisma. They genuinely care about their employees, and they communicate this caring effectively. They are enthusiastic and enjoy bring out the gifts of others. Their organizations tend to be democratic and participative. NF‘s are comfortable with unstructured situations. They are patient but can also respond with a sudden burst of energy and enthusiasm.

Weaknesses as a Manager: NF managers may spend too much time seeking out and enjoying personal interaction—to the neglect of the organization‘s tasks. They can be immobilized by conflict, not wanting to displease anyone. NF‘s also commit too much and often fail to care for themselves.

Personality Types at Work

Type SP

SJ

NT

Strengths

Weaknesses

Managerial Tasks at Which You Excel

Bold Clever Action-orientation Adaptable Risk taker Confident Open-minded Realist Accurate Careful Thorough Responsible Loyal Hard-working Common sense Fair Competent Intelligent

Impatient Dislikes planning ahead Dislikes obeying policy Dislikes stability Dislikes theory Forgetful Unpredictable

Responding to crises Troubleshooting Negotiating Changing organization Motivating Risky tasks

Rigid Overly traditional Resists change Judgmental Pessimist Dislikes delays Perfectionist

Executing plans Establishing policies Maintaining organization Making factual decisions Unpleasant tasks Repetitious tasks

Difficulty communicating Assumes others understand

Designing organization Technical tasks

Management 12e by Ricky W. Griffin

NF

Inventive Handles complexity Efficient Technical skills Visionary designer Skeptical Long-range focus Imaginative Tactful Subtle People-orientation Communication Charismatic leader Democratic Values diversity Appreciative

Not appreciative Dislikes implementation Too impersonal High expectations Too much planning

New businesses or tasks Sharing resources Combining ideas Strategic planning Tasks requiring efficiency

Too optimistic, unrealistic Over-commits Lacks follow-through Easily discouraged Overly personal Avoids conflict Undisciplined

Rewarding others Raising morale Public relations Sensitive/ethical tasks Training Participative teams

Building Effective Time Management Skills I.

Purpose This exercise is designed to aid students in seeing the relationship between poor time management and stress. Students may also gain insight into improving their time-management skills.

II.

Format This time-management exercise is best done individually. It should take about 15–20 minutes, although some students who take it more seriously may spend much longer completing it.

III. Follow-Up A. 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?

B. For each stressor that‘s affected by your time management skills, develop a strategy for using time more efficiently.

C. 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, but work may interfere with school. Can you manage any of these interrelationships more effectively by managing your time more effectively?

D. How do you typically manage the stress in your life? Can you manage stress is a more timeeffective manner?

Students‘ answers will vary a great deal, as each one will notice different areas of poor time management and different levels of stress. Most students will probably notice that poor time management is a significant source of stress, and they could be more effective and relaxed with better time management. Ideas for stress management include relaxation and fun with friends, exercise, more sleep, frequent breaks from work, and reducing the number of commitments. Learning to say ―No‖ to undesired tasks can save a great deal of time and can thus reduce stress.

MANAGEMENT AT WORK Can’t Get No Job Satisfaction?

The case describes the state of satisfaction found in American workers. Using Gallup polls and survey results from The Conference Board Job Satisfaction report, shows only about 30 percent of workers are engaged in their work. The case provides an example of a typical employee and their reasons for

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dissatisfaction. Workers appear most dissatisfied with employers‘ promotion policies and their bonus plans.

1.

Case Question 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). Below 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 review 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

Answers will vary from student to student due to the desires and needs of each student.

2.

Case Question 2: What about Megan? First, draw up a list of jobs-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.

Students will vary on their advice for Megan. If they feel Megan should quit her job it may center around trust and micromanaging. If Megan cannot trust her boss to keep her word, then there may not be a reason to stay. Her boss is a micromanager and they is unlikely to change in the future. If they urge Megan to stay and work it out with her boss, students may use the points bulleted above for Megan to bring up with her boss.

3.

Case Question 3: 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

Management 12e by Ricky W. Griffin 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)?

This criticism applies to Meagan‘s boss, a micromanager. Meagan works a difficult schedule and finding a replacement for her may be difficult. Meagan‘s boss should accommodate Meagan‘s request for a weekend off.

4.

Case Question 4: 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 improvement 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?

Given the nature of this personal question, responses will vary.

† Gad Levanon, ―The Determinants of Job Satisfaction,‖ The Conference Board, June 25, 2013, www.conference-board.org, on March 7, 2015. ‡ ―The Top 10 Reasons People Hate Their Jobs,‖ Linkedin, July 9, 2013, www.linkedin.com, on March 3, 2015. ** The Conference Board, ―U.S. Workers More Satisfied? Just Barely‖ (press release), June 18, 2014, www.conference-board.org, on March 4, 2015.

CHAPTER 15

Managing Employee Motivation and Performance CHAPTER SUMMARY This chapter deals with employee motivation. The text first examines the nature of employee motivation and then explores the major perspectives on motivation. Newly emerging approaches are then discussed.

The chapter concludes with a description of rewards and their role in motivation.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

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

2.

Identify and describe the major content perspectives on motivation.

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3.

Identify and describe the major process perspectives on motivation.

4.

Describe reinforcement perspectives on motivation.

5.

Identify and describe popular motivational strategies.

6.

Describe the role of organizational reward systems in motivation.

MANAGEMENT IN ACTION Let the Games Begin In the opening case, Bluewolf, a New York based global consulting agency, decided to incorporate enterprise gamification into their company. More specifically, Bluewolf wanted social gamification, the use of games to enhance certain social behaviors, especially sharing. Bluewolf launched a three-part #GoingSocial program aimed at increasing employee‘s use of social media. As a result, blog postings have increased and there is increased traffic to the company‘s website. Bluewolf‘s chief marketing officers says the program gives their employees a megaphone to stream the company‘s content to all of the employee‘s social networks.

Discussion Starter: Ask students how they feel about Bluewolf‘s #GoingSocial campaign. Would they relish the idea of a ‗free pass‘ to use social media during work time? Or would they somehow feel ‗used‘ as a tool to promote the company?

LECTURE OUTLINE I.

THE NATURE OF MOTIVATION Motivation is the set of forces that cause people to behave in certain ways.

A.

The Importance of Motivation in the Workplace Individual performance is generally determined by three factors.

1.

2.

3.

Motivation is the desire to do the job.

Ability is the capability to do the job.

The work environment includes the resources needed to do the job.

While the last two can be controlled by the manager, the first cannot. Motivation is important because of its significance as a determinant of performance and because of its intangible character.

The motivation framework is a good starting point for understanding how motivated behavior occurs. The motivation process begins with a need deficiency.

Teaching Tip: Note that motivation reflects behavioral choices—people choose to work hard, to do just enough to get by, or to do nothing at all.

Teaching Tip: Note the importance of ability and environment, in conjunction with motivation, as determinants of employee performance. No matter how much most of us want to be a championship tennis player or golfer, most lack the ability to do so.

Management 12e by Ricky W. Griffin Discussion Starter: Ask students to recall instances in which they have done an exceptionally good job, and then to describe the respective roles of motivation, ability, and environment in that performance.

B.

Historical Perspectives on Motivation 1. The traditional approach to employee motivation is best represented by the work of Frederick W. Taylor. Taylor advocated an incentive pay system.

His assumptions included managers knew more than workers, economic gain was the primary motivator, the work is inherently unpleasant and the money is more important than the job.

Although money is a motivating factor, the traditional approach took too narrow a view and failed to consider other motivational factors.

Cross-Reference: Note that Frederick Taylor and his scientific management approach were first introduced in Chapter 2.

Interesting Quote: ―If overpaid, many [workers] will work irregularly and tend to become more or less shiftless, extravagant, and dissipated.‖ (F.W. Taylor, Shop Management, Harper & Brothers Publishers, 1911, 27.)

2.

The human relations approach emphasizes the role of social processes in the workplace.

The basic assumptions are that employees want to feel useful and important, that employees have strong social needs, and that these needs are more important than money in motivating them.

Advocates advised managers to provide employees with the illusion of involvement, a symbolic gesture, even though no real participation took place.

Extra Example: Carnation Milk used to use the slogan, ―Our milk comes from contented cows.‖ This slogan essentially mirrors the human relations school of employee behavior.

3.

The human resource approach assumes not only that the illusion of involvement is important, but that workers will be motivated when they provide a real contribution to both themselves and the organization.

This approach assumes people want to contribute and are able to make genuine contributions.

Management‘s task is to encourage participation and create a work environment that makes full use of the human resources available.

Extra Example: Recent advances in the use of participation, empowerment, and work teams in organizations reflect the human resource approach to employee motivation.

II.

CONTENT PERSPECTIVES ON MOTIVATION Content perspectives are approaches to motivation that address the question: What factor or factors in the workplace motivate people?

A.

The Needs Hierarchy Approach Needs hierarchies assume people have different needs that can be arranged in a hierarchy of importance. The two best know are Maslow‘s hierarchy of needs and the ERG theory.

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1.

Maslow’s hierarchy of needs states that people are motivated to satisfy five groups of needs in order: a) Physiological – food and air. b) Security – housing or a job. c) Belongingness – love, affection, and acceptance by one‘s peers. d) Esteem – self-image and self-respect and recognition and respect from others. e) Self-actualization – continued growth and individual development.

Teaching Tip: Many students will have covered Maslow in other courses (e.g., psychology, marketing, etc.). You might consider asking for a show of hands and skimming or skipping this material if all of your students have already covered it.

Extra Example: Maslow based his theory on research with monkeys, then college students, and then mental patients.

Group Exercise: Have students work in small groups and identify ways that people might satisfy each of the five need levels in Maslow‘s hierarchy.

Maslow suggested that people will remain at one level until that need is satisfied and then move up to the next level.

Maslow‘s concept of the needs hierarchy has a certain intuitive logic and many managers accept the theory. But research revealed that five levels of need were not always present and the order of the levels is not always the same as Maslow defines. In addition, people from different cultures are likely to have different need categories and hierarchies.

2.

The ERG theory of motivation suggests people‘s needs are grouped into three possible overlapping categories – existence, relatedness, and growth.

This theory collapses Maslow‘s hierarchy into three levels. a) Existence needs correspond to the physiological and security needs. b) Relatedness needs focus on how people relate to their social environment. Maslow would encompass both the need to belong and the need to earn the esteem of others. c) Growth needs would include the needs for self-esteem and self-actualization.

There are two main differences from Maslow‘s hierarchy. The ERG theory allows more than one level to cause motivation at the same time, and a person can back down the hierarchy if he or she becomes frustrated. This is called a frustration-regression element.

Teaching Tip: Stress the similarities and differences between Maslow‘s need hierarchy and the ERG theory.

Discussion Starter: Ask students to critique these two theories and discuss how they, as future managers, might apply one or the other in a work setting.

B.

The Two-Factor Theory Another popular content perspective is the two-factor theory of motivation which suggests that people‘s satisfaction and dissatisfaction are influenced by two independent sets of factors – motivation factors and hygiene factors.

Frederick Herzberg developed his theory based on interviews with two hundred accountants and engineers. The responses indicated that a different set of factors was associated with satisfaction and with dissatisfaction.

Management 12e by Ricky W. Griffin He concluded that satisfaction and dissatisfaction were not at opposite ends of one continuum, but they were each on a different continuum. Herzberg named the satisfaction continuum motivation factors and the dissatisfaction continuum hygiene factors.

Herzberg argued there are two stages in the process of motivating employees.

First, managers must ensure the hygiene factors are not deficient. By providing hygiene factors at an appropriate level, managers do not stimulate motivation.

Managers should move to stage two and give employees opportunity to experience motivation factors such as achievement and recognition. Herzberg recommended job enrichment.

Although widely accepted, the two-factor theory has its critics. On criticism is the interpretation and sample size of the initial interviews on which the theory is based.

Cross-Reference: Note that Herzberg‘s theory is the basis for job enrichment, an alternative approach to job design introduced and discussed in Chapter 10.

Discussion Starter: Note that the two-factor theory suggests that people can be satisfied and dissatisfied at the same time. Ask students whether they accept this premise.

Discussion Starter: Herzberg asserts that pay in and of itself does not motivate performance. At the same time, pay may be a motivator as a symbol of a person‘s worth or value to an organization. Solicit student opinions about this idea.

C.

Individual Human Needs Individual human needs play a role in motivation as well. The three most important individual needs are achievement, affiliation, and power.

1.

2.

3.

D.

The need for achievement is the desire to accomplish a goal or task more effectively than in the past.

The need for affiliation is the desire for human companionship and acceptance.

The need for power is the desire to be influential in a group and to control one‘s environment.

Implications of the Content Perspectives Content perspectives discuss what motivates people, but they do not describe how people are motivated.

Discussion Starter: Have students assess their achievement, affiliation, and power needs.

Cross-Reference: In many ways, the needs for achievement, affiliation, and power can be thought of as individual differences of the sort discussed in Chapter 14.

III. PROCESS PERSPECTIVES ON MOTIVATION Process perspectives are concerned with how motivation occurs. Process perspectives focus on why people choose certain behavioral options to fulfill their needs and how they evaluate their satisfaction after they have attained these goals.

Teaching Tip: Stress the ―how‖ aspect of the process perspectives on motivation.

A.

Expectancy Theory

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Expectancy theory suggests that motivation depends on two things: how much we want something and how likely we think we are to get it.

Discussion Starter: Ask students to recall an instance in which they did not pursue something they wanted because they felt they had little or no chance of achieving it.

Cross-Reference: Victor Vroom, one of best known expectancy theorists, also developed an important theory of leadership discussed in Chapter 16.

Expectancy theory rests on four basic assumptions.

1.

Behavior is determined by a combination of forces in the individual and in the environment.

2.

People make decisions about their own behavior in organizations.

3.

Different people have different types of needs.

4.

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.

There are important expectations in the expectancy model.

1. Effort-to-performance expectancy is the individual‘s perception of the probability that effort will lead to high performance.

2. Performance-to-outcome expectancy is the individual‘s perception that performance will lead to a specific outcome.

3. Outcomes are consequences of behaviors in an organization setting, usually rewards.

Each outcome has an associated value or valence.

4. A valance is an index of how much an individual desires a particular outcome, the attractiveness of the outcome to the individual. If the person wants the outcome, the valence is positive; if they do not want it, the valence is negative. The valence is zero if they are indifferent to the outcome.

For motivated behavior to occur, three conditions must be met.

First, the effort-to-performance expectancy must be greater than 0.

Second, the performance-to-outcome expectancy must also be greater than 0.

Third, the sum of the valences for the outcomes must be greater than 0.

The Porter-Lawler extension to expectancy theory suggests that high performance may lead to satisfaction that results from the rewards given for a high performance.

This reverses the direction of causation because expectancy theory says that motivated workers will have high performance, but the Porter-Lawler extension says that highperforming workers will become motivated.

Cross-Reference: In Chapter 2 we noted the fallacy of the human relationists who argued that satisfaction causes performance. The Porter-Lawler extension of expectancy theory provides the framework from which this viewpoint was changed.

B.

Equity Theory Equity theory suggests that people are motivated to seek social equity in the rewards they receive for performance.

To determine equity, a person compares his or her ratio of outcomes (pay, recognition) to inputs (time, experience) to someone else‘s ratio.

Both the formulation of the ratios and comparisons between them are very subjective and based on individual perceptions. The results can be a feeling of equitable rewards, too few rewards, or too many rewards.

Management 12e by Ricky W. Griffin Those who feel underrewarded may reduce their inputs or ask for an increase in their outcomes in order to establish equity. Those who feel overrewarded may increase their effort or rationalize the differences away.

Extra Example: An excellent example of equity theory occurs at the beginning of each new NFL season. Top draft choices fresh out of college sign big contracts, and disgruntled veterans almost immediately start calling for their own contracts to be renegotiated. John Feinstien‘s book Next Man Up is an excellent portrayal of the motivational techniques used in the NFL. Discussion Starter: Equity theory predicts that if people believe that they are being overpaid, they will take some action to reduce their feelings of inequity. Ask students what they think about this prediction.

Cross-Reference: Note the similarities between the equity process and the notion of psychological contracts, as discussed in Chapter 14.

Discussion Starter: Have students recall situations in which they have felt both equity and inequity. Then ask them to diagram each instance in terms of their outcomes and inputs and those of a comparison other.

C.

Goal Setting Theory Goal setting theory of motivation assumes that behavior is a result of conscious goals and intentions. By setting goals for people, a manager should be able to influence their behavior.

In the original version of goal setting theory, two specific goal characteristics were expected to shape performance. Both are shown to consistently relate to performance.

1. Goal difficulty is the extent to which a goal is challenging and requires effort.

2. Goal specificity relates to the clarity and precision of the goal.

Discussion Starter: Ask students if they think goals can be too difficult or too specific.

Because the theory attracted so much interest from researchers and managers alike, an expanded model of the goal setting process was proposed. The expanded theory adds two goal attributes.

3. Goal acceptance is the extent to which an individual adopts a goal as his or her own.

4. Goal commitment is the extent to which an individual is personally interested in reaching the goal.

D.

Implications of the Process Perspectives Expectancy theory can be useful for managers who are trying to improve the motivation of their subordinates. They can follow a series of steps to achieve the theory. Managers need to consider the nature of the ‗other‘ to whom the employee is comparing themselves. Goalsetting theory can be used to implement both expectancy and equity theory concepts.

Teaching Tip: Point out the similarities between the expanded goal-setting theory of motivation and the expectancy theory.

Extra Example: Weyerhauser Corp. successfully uses goal setting as motivation.

Cross-Reference: Note the similarities and differences in goal-setting theory (as discussed in this chapter) and MBO (as discussed in Chapter 6).

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IV. REINFORCEMENT PERSPECTIVES ON MOTIVATION Reinforcement theory is an approach to motivation that 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.

A.

Kinds of Reinforcement in Organizations There are four basic kinds of reinforcement that can result from behavior – positive reinforcement, avoidance, punishment, and extinction.

1. Positive reinforcement is a method of strengthening behavior with rewards or positive outcomes after a desire behavior is performed. Praise, a bonus, or a raise would work.

Extra Example: Explain the role of reinforcement in the classroom as you provide grades, verbal compliments, criticisms, etc. in response to student behavior.

Extra Example: Also note the reinforcing consequences that student behaviors have on instructors. For example, good class attendance and student enthusiasm provide positive reinforcement for instructors.

2.

3.

4.

Avoidance is used to strengthen behavior by avoiding unpleasant consequences that would result if the behavior were not performed. Come to work on time to avoid a reprimand.

Punishment is used to weaken undesired behaviors by using negative outcomes or unpleasant consequences when the behavior is performed. Punishment brings counterproductive side effects such as resentment and hostility.

Extinction is used to weaken undesired behaviors by simply ignoring or not reinforcing them. Works on behavior that has previously been rewarded.

Teaching Tip: Solicit examples of the various kinds of reinforcement from students.

B.

Providing Reinforcement in Organizations Not only is the kind of reinforcement important, but so is when or how often it occurs.

1. A fixed-interval schedule provides reinforcement at fixed intervals of time, regardless of behavior. Weekly paychecks for example.

2. A variable-interval schedule provides reinforcement at varied time intervals, such as occasional visits by the supervisor. Appropriate for praise or rewards based on visits or inspections.

3. A fixed-ratio schedule provides reinforcement after a fixed number of behaviors, regardless of the time interval involved, such as a bonus for every fifth sale.

4. A variable-ratio schedule provides reinforcement after varying numbers of behaviors are performed, such as the use of complements by a supervisor on an irregular basis.

This is the most powerful schedule in terms of maintaining desired behaviors. Not appropriate for formal rewards, such as pay.

Behavior modification, or OB Mod (for Organizational Behavior Modification), is a method for applying the basic elements of reinforcement theory in an organizational settings. Behavior that should be increased and decreased are identified and tied to specific kinds of reinforcement.

C.

Implications of the Reinforcement Perspectives Reinforcement in organizations can be a powerful force for maintaining employee motivation.

For effective reinforcement, managers need to use it in a manner consistent with the various

Management 12e by Ricky W. Griffin types and schedules of reinforcement. Managers must understand they may be inadvertently motivating undesired or dysfunctional behaviors.

Group Exercise: Have student groups design a motivational system that a manager might use that is based on the concepts and principles of reinforcement.

V.

POPULAR MOTIVATIONAL STRATEGIES Managers must use various techniques and strategies to apply the theories discussed.

A.

Empowerment and Participation 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 is a broader concept promoting participation in a wide variety of areas.

Teaching Tip: Stress the subtle difference between empowerment and participation.

Discussion Starter: Ask students for their own personal examples involving participation and/or empowerment.

1.

2.

Areas of Participation Employees can participate in addressing questions and making decisions about their own job. Workers may make decisions about administrative matters, such as work schedules.

Employees are increasingly participating in broader issues of product quality.

Techniques and Issues in Empowerment Work teams are one method used to empower workers. Another method is to change the team‘s overall method of organizing, such as eliminating layers from its hierarchy and becoming more decentralized.

Empowerment will enhance organizational effectiveness only if certain conditions exist.

First, the organization must be sincere in efforts to spread power and autonomy to lower levels.

Second, the organization must be committed to maintaining participation and empowerment.

Third, workers must truly believe they and their managers are working together in their joint best interests.

In addition, the organization must be systematic and patient in its efforts to empower workers.

Finally, the organization must be prepared to increase its commitment to training.

B.

Alternative Forms of Working Arrangements Another popular strategy for motivating workers today is developing and offering alternative forms of work arrangements involving time and/or place.

1.

2.

Variable Work Schedules A compressed work schedule is working a full 40-hour week in fewer than the traditional five days.

Flexible work schedules, sometimes called flextime, is a work schedule in which employees have some control over the hours they choose to work. For example,

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employees might report to work early or late, take a short or long lunch, and leave early or late.

Extra Example: Texaco, Shell, and General Mills are among other firms that use modified workweeks of some sort.

Discussion Starter: Ask students how they would feel about working different forms of modified workweeks.

3.

4.

Job sharing occurs when two or more part-time workers to share one full-time job.

Telecommuting allows employees to spend part of their time working offsite, usually at home. Information technology makes working from home feasible.

Discussion Starter: Note that some employers promote telecommuting not for motivational reasons but rather to cut down their own facilities costs.

VI. USING REWARD SYSTEMS TO MOTIVATE PERFORMANCE An organizational reward system is the formal and informal mechanisms by which employee performance is defined, evaluated, and rewarded.

Cross-Reference: Note that the design of reward systems is a part of human resource management, as discussed in Chapter 13.

Rewards specifically tied to performance have the greatest impact on enhancing both motivation and actual performance.

A.

Merit Reward Systems Merit pay refers to pay awarded to employees on the basis of the relative value of their contributions to the organization.

Merit pay plans formally base at least some meaningful portion of compensation on merit.

The most common type of merit pay plan is the annual raise.

Merit is usually determined or defined based on the individual‘s performance and overall contributions to the organization.

B.

Incentive Reward Systems Incentive systems are among the oldest forms of performance-based rewards.

1.

2.

3.

4.

5.

6.

A piece-rate incentive plan is a reward system wherein the organization pays an employee a certain amount of money for every unit she or he produces. This is the simplest type of incentive system.

Individual incentive plans reward individual performance on a real-time basis.

Variations on incentive pay involve paying incentives based on both individual and group performance, or calculating the amount of money available for incentive pay based on corporate or division performance as a whole.

Sales commissions, in which an agent is paid a percentage of his or her sales over a period of time, perhaps the most common form of individual incentive.

Other types of incentives include nonmonetary incentives such as additional time off or a company-paid vacation.

A major advantage of incentives relative to merit systems is that incentives are typically a one-shot reward and do not accumulate as part of the individual‘s base salary. Also, because the plans focus on one-time events, it is much easier to change the focus of the incentive plan.

Management 12e by Ricky W. Griffin Global Connection: Workers in Japan receive an average of 25 percent of their total pay in the form of flexible bonuses. In the United States, the average is only 1 percent.

C.

Team and Group Incentive Reward Systems 1. Gainsharing programs are designed to share the cost savings from productivity improvements with employees. Gainsharing aligns employee and corporate interests. a) In implementing gainsharing, team performance is accurately measured, then team members devise ways to improve productivity, team members are awarded a percentage of the cost savings resulting from improvements as a one-time bonus.

Employees usually get 25 percent with the organization getting the other 75 percent of resulting cost savings. b) A Scanlon plan is similar to gainsharing, but the distribution of gains is tilted much more heavily toward employees. Workers typically get two-thirds or more of the savings, and the award is given to all workers, not just those who made the improvements.

2. One-time team incentives may be awarded as a proportion of each employee‘s base salary, or the same dollar amount may be given to each worker.

3. Nonmonetary rewards may be given at the group level, most commonly in the form of prizes and awards.

4. Profit sharing creates a pool of money based on corporate profit that is then distributed to all employees. Rewards may be given at the end of the time period or kept in an account until retirement.

5. Employee stock ownership programs, or ESOPs, gradually grants stock ownership of the firm to employees as a reward.

D.

Standard Forms of Executive Compensation Typically, top managers have a different compensation plan than do the rest of a firm‘s employees. They receive compensation in two forms: base salary and incentive pay.

1.

2.

3.

4.

5.

Base salary is a guaranteed amount of compensation.

Most executives also receive one or more forms of incentive pay, traditionally bonuses based on performance of the organization. May be a pool of diverted profits split between top executives.

Special Forms of Executive Compensation.

A stock option plan is established to give senior managers the option to buy company stock in the future at a predetermined fixed price. a) If executives are effective, then stock price should rise, and the managers may buy the stock at bargain prices. The options are worthless, however, if stock price falls. b) Options are popular because their cost to the organization is low and they align the interests of managers and stockholders. c) Disadvantages of options include the potential manipulation of stock price by unscrupulous executives, new accounting changes under consideration that may require options to be treated as an expense item on an income statement, and the fact that options are no reward when stock price is falling.

Executives also usually receive many other types of compensation, including club memberships, use of company apartments and planes, low- or no-interest loans, and so on.

There are important criticisms of executive compensation in the U.S. today. a) Many feel that executive compensation, averaging over $1 million (CEOs can make much more than this), is simply too high. b) There often seems to be little relationship between executive pay and performance. c) The gap between CEO earnings and the earnings of a typical employee is enormous, and increasing. In 1980, a typical U.S. CEO earned 42 times the

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average worker, by 1990, the ratio increased to 85 times the earnings, and in 2014 the ratio was 354 times the earnings of a typical worker.

E.

New Approaches to Performance-Based Rewards 1. Some organizations are allowing employees to have a greater say in how rewards are determined and allocated.

2. Some firms customize rewards to each individual employee‘s needs.

Cross-Reference: Note the relevance of designing reward systems to various theories of motivation as discussed throughout earlier sections of this chapter.

END OF CHAPTER QUESTIONS Questions for Review 1.

Each historical perspective on motivation built on the earlier perspectives and differed from them in some ways. Describe the similarities and differences between the traditional approach and the human relations approach. Then describe the similarities and differences between the human relations approach and the human resource approach.

The human relations approached put more emphasis on social needs than did the traditional approach. However, like the traditional approach, the human relations approach did not offer workers real participation in decision making. The human resource approach agreed with the emphasis on social factors that was first proposed by the human relations approach. In contrast to the human relations approach, the human resource approach did offer employees a chance for meaningful participation in their work environment.

2.

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

The content theories of motivation focus on why people are motivated, whereas the process and reinforcement perspective focus on how people are motivated. In both the reinforcement and the process perspectives, individual rewards are seen as fulfilling the needs discussed in the content theories; however, the actual decision to perform is outlined in the process perspective.

3.

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

Goal-setting theory proposes that workers are most motivated when they know exactly what they are expected to achieve (goal specificity) and when the goal is somewhat challenging but not impossible to achieve (goal difficulty). The expanded theory addresses additional areas: the need for employees to accept the goal and feel a commitment to achieving it. Asking a worker to do his or her ―best‖ will be motivating for some individuals who have a high need for achievement, but most workers will be more motivated by being given a specific and challenging goal.

4.

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

Variable work schedules allow workers to work outside of the traditional ―Monday to Friday, 8-to5‖ hours of most businesses. Workers may work early in the morning, stay late in the evening, work on weekend, or work a few long days followed by several days off. Flexible work schedules given even more freedom for each employee to design their own optimum schedule. Job sharing allows two part-time workers to fill a full-time position. Workers who telecommute can work from home or any other location by using email and the Internet to communicate with their office. Anything that makes workers‘ lives more convenient or gives workers control over how they work is likely to be motivating.

Management 12e by Ricky W. Griffin

Questions for Analysis 5.

Choose one theory from the content perspectives and one from the process perspectives.

Describe actions that a manager might take to increase worker motivation under each of the theories. What differences do you see between the theories in terms of their implications for managers?

Students will choose different theories, so answers will vary. Students should note that content theories imply that managers should diagnose worker needs and then attempt to fill those needs, while process theories claim that managers must engage in a variety of behaviors such as communication, setting goals, or giving punishment.

6.

Can factors from both the content and the process perspectives be acting on a worker at the same time? Explain why or why not. Whether you answered yes or no to the previous question, explain the implications for managers.

Clearly, both content and process theories can be operating at the same time, because there is nothing in the theories that precludes this conclusion. For managers, the implication is that they should be aware of the variety of theories that can explain worker motivation. Greater awareness and skill in applying the theories make it more likely that the manager will be effective in increasing motivation.

7.

How do rewards increase motivation? What would happen if an organization gave too few rewards? What would happen if it gave too many?

Underlying every motivation theory is the premise that individuals act in certain ways in order to gratify their needs. Rewards can fill those needs directly such as when a worker uses his or her pay to buy groceries, feeling a need for food. Rewards can also fill needs indirectly such as when a worker‘s promotion leads to greater status and respect from others, filling a need for power.

Organizations that do not offer adequate rewards will have employees who are unmotivated, leading to low performance, absenteeism, negative attitudes, and other undesirable outcomes. Organizations that offer too many rewards, on the other hand, may find that rewards lose their power to motivate.

For example, if a manager praises every worker every day, regardless of performance, then there is little incentive for the workers to increase their performance.

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Questions for Application 8. Think about the worst job you have held. What approach to motivation was used in that organization? Now think about the best job you have held. What approach to motivation was used there? Can you base any conclusions on this limited information? If so, what are they?

One likely response is the use of Herzberg‘s theory. Note whether the response shows hygiene factors to be present on the ―worst‖ job and motivation factors present on the ―best‖ job. Another approach would be positive reinforcement for the best job and punishment for the worst job. A complex answer might involve expectancy theory—intensive training and a clearly defined reward system in the best job and being hired and thrown into a position in the worst job.

9. Interview both a manager and a worker (or administrator and faculty member) from a local organization. What views of or approaches to motivation seem to be in use in that organization? Do the manager’s views differ from the worker’s? If so, how do you explain the differing perceptions?

Students may show how a manager attempts to make each subordinate feel self-actualized at work.

Of course, this would also involve motivation factors, growth needs, and a need for achievement.

These same comments could be examples of positive reinforcement or positive valence outcomes.

Be sure particular approaches are applied properly. The perceptions of workers and managers may differ. For example, a reward that the manager feels is desirable may not be motivating to a worker.

Or, the praise that a manager offers may be seen as hypocritical or manipulative by the worker.

10. Consider a class you have taken. Using just that one class, offer examples of times when the professor used positive reinforcement, avoidance, punishment, and extinction to manage students’ behavior.

Examples will vary, but students will see that most professors, like most managers, use a variety of reinforcement techniques depending on the particular situation. Reinforcement theory is most effectively applied when a manager uses all of the four techniques.

END OF CHAPTER EXERCISES Building Effective Interpersonal Skills I.

Purpose This exercise gives students a chance to see whether the factors that motivate them come primarily from within and from work or from factors external to them and their work.

II.

Format Students are given 12 factors that contribute to job satisfaction. They are asked to rank how important each factor is to them, on a scale of 1 to 5.

III. Follow-Up The 12 factors are divided into two lists – motivating factors and maintenance factors and questions that correspond to each are listed. The closer the student‘s column score is to 30, the more important is that factor to them.

Building Effective Decision-Making Skills I.

Purpose Students exercise their decision-making skills by researching a career path and making choices about that path.

Management 12e by Ricky W. Griffin II.

Format This decision-making skills exercise should be done outside of class by individuals. It will take students about 10 minutes to complete, although research will take longer.

III. Follow-Up A. Consider the position that you‘d like to hold at the peak of your career. It may be CEO, or 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.

B. Now describe a career path that will lead you toward that goal. It may help to work ―backwards,‖ that is, starting with your final position and work backwards 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.

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

D. 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?

Students will choose a variety of goals and an even-larger variety of paths to achieve those goals. However, most will acknowledge that an explicit consideration and recording of career goals could be useful. In addition, the constant reminder may be helpful as students make choices and accomplish tasks in their chosen fields.

MANAGEMENT AT WORK Engaged to Be Motivated Using Gallup survey results, the closing case presents the argument that if you graduate from college you are less likely to be engaged in your work. While technically the statistics support this statement, the case outlines several related factors. Does the problem lie with colleges or with the workplace? Not surprisingly, the answer is both. Some feel this lack of engagement is a sign of students not planning a clear career path. Others feel engaging in one‘s job is more of a personal decision.

Management Update: Ken Royal and Susan Sorenson write in Employees Are Responsible for Their Engagement Too, published in Business Journal, June 16, 2015, ―You have a choice in how you respond to daily challenges, and if there‘s nothing else you can change about a situation, at least you can choose your attitude and approach.‖ 1.

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

Personal motivation is important for achieving the layers of Maslow‘s hierarchy of needs. Personal motivation may lead a person to seek a job offering the security needs they desire. Personal motivation may even satisfy the person‘s belongingness needs themselves if the manager is unable to fulfill those needs. Even the top two tiers require personal motivation to apply for that higher level job or continuing to grow in their job. The ERG theory is similar with personal motivation a factor for moving up the chain on needs from existence to relatedness to growth. The two-factor theory requires personal motivation to achieve the work content motivational factors. Learned motivation could be used on the work environment motivation factors. Personal motivation would play into expectancy theory if the person believed there was a good chance of achieving the outcome. It would require learned motivation if the person did not believe the outcome was an

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option. Personal motivation and learned motivation could come into play if an employee perceives an imbalance in the equity theory. The worker will try to correct the imbalance and this may take motivation from both internal and learned motivation. Goal-setting theory relies mainly on personal motivation but also some learned motivation. Workers motivated to complete goals (personal) sometimes require some extra motivation (learned) in order to achieve the tougher goals.

2.

Case Question 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.

Due to the personal nature of these questions, students answers will vary widely.

3.

Case Question 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?

Student responses will vary.

4.

Case Question 4: The Gallup survey measured levels of engagement by asking respondents whether they agreed or disagreed with several statements about post-graduation 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 order of importance to you as probably 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.]

Student‘s ordering of the statements will vary by student. The item ―I have the opportunity to do what I do best every day‖ is the strongest predictor of workplace engagement. *National Survey of Student Engagement, Promoting Student Learning and Institutional Improvement: Lessons from NSSE at 13: Annual Results 2012 (2012), http://nsse.iub.edu, on March 17, 2015. †Adapted from Tim Hodges, Gallup-Purdue Index of Great Jobs and Great Lives (Gallup Inc., 2014), www.mhec.org, on March 17, 2015.

CHAPTER 16

Management 12e by Ricky W. Griffin

Managing Leadership and Influence Processes CHAPTER SUMMARY This chapter examines leadership in organizations and looks at both effective leaders and less effective ones. The chapter starts by characterizing the nature of leadership and discusses the three major approaches to studying leadership – traits, behaviors, and situations. After examining other perspectives on leadership, the chapter concludes by describing another approach to influencing others – political behavior in organizations.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the nature of leadership and relate leadership to management.

2.

Discuss and evaluate the two generic approaches to leadership.

3.

Identify and describe the major situational approaches to leadership.

4.

Identify and describe three related approaches to leadership.

5.

Describe three emerging approaches to leadership.

6.

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

MANAGEMENT IN ACTION Leaders of Oil Repute The opening case focuses on leadership in the oil industry, highlighting BP Oil in particular. The oil industry has a high ratio of making sustainability a strategic priority. The question is raised as to whether the companies are pushing sustainability for the right reasons. Is the oil industry concerned for their future, thus their interest in sustainability? Or are they just greenwashing themselves as a sustainable corporation to prop up their reputations?

Discussion Starter: Ask students their opinion on BP Oil. Do they feel this is a company interested in sustainability because it is the right thing to do, or because BP wants to protect their reputation? Can students come up with other companies who appear to be greenwashing? Dow and Monsanto may come up in this discussion.

LECTURE OUTLINE I.

THE NATURE OF LEADERSHIP A.

The Meaning of Leadership Leadership is both a process and a property.

1.

2.

Leadership as a process 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 and organization culture.

Leadership as a property is the set of characteristics attributed to individuals who are perceived to be leaders.

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Thus, leaders are people who can influence the behaviors of others without having to rely on force; those accepted by others as leaders.

Group Exercise: Have small groups of students brainstorm a list of names that they think of when they hear the word ―leadership.‖ Have a representative from each group write its list on the board. Note similarities and differences among the different lists.

B.

Leadership and Management Leadership and management are related but not the same. A person can be a manager, a leader, both, or neither.

For example, when executing plans managers focuses on monitoring results, comparing them with goals, and correcting deviations. In contrast, the leadership side of the same activity focuses on energizing people to overcome bureaucratic hurdles to help reach goals.

Teaching Tip: Walk through Table 16.1 with your students to highlight for them the various distinctions that can be drawn between management and leadership.

Organizations need both good managers and good leaders if they are to be effective.

Leadership is necessary to create change, and management is necessary to achieve orderly results.

C.

Leadership and Power Power is the ability to affect the behavior of others. One can have power without using it. In organizational settings, there are usually five kinds of power: legitimate, reward, coercive, referent, and expert power.

Teaching Tip: Some instructors use their role vis-à-vis their students to illustrate power.

For example, instructors hold legitimate, reward, and expert power over students, but they may or may not hold coercive and/or referent power.

1.

2.

3.

Legitimate power is power granted through the organizational hierarchy; the power defined by the organization to be accorded to people occupying particular positions.

Legitimate power is authority, but does not make someone a leader.

Reward power is the power to give or withhold rewards, such as salary increases, bonuses, promotions, praise, recognition, and interesting job assignments. The manager is a leader if subordinates seek the informal rewards such as praise and recognition.

Coercive power is the power to force compliance by means of psychological, emotional, or physical threat. Managers who rely too much on coercive power are resented and seen as poor leaders.

Interesting Quote: ―I‘ve yelled at people and I‘m not ashamed of it. We have to run this company efficiently and without a bunch of babies who say ‗Mommy yelled at me today.‘ It‘s impossible to run a leveraged operation like camp. If you don‘t like it, leave.

It‘s not a prison.‖ (Linda Wachner, CEO of Warnaco, Fortune, October 18, 1993, 41.)

4.

5.

Referent power is the personal power that accrues to someone based on identification, imitation, loyalty, or charisma. Referent power is abstract but more likely to be associated with leadership.

Expert power is the personal power that accrues to someone based on information or expertise they possess. People who are both leaders and managers tend to have a lot of expert power.

Discussion Starter: Have students recall examples of when they have used or have witnessed these various bases of power.

Management 12e by Ricky W. Griffin 6.

Several methods of using power have been identified. a) A legitimate request based on legitimate power. b) Instrumental compliance, whereby a subordinate performs a duty requested and receives a reward for doing so. Based on reinforcement theory. c) A manager uses coercion when they imply punishment for not doing something. d) Rational persuasion occurs when the manager can convince the subordinate that compliance is in their best interests. e) Personal identification is used when a manager realizes, and then exploits, their referent power. f) A manager who induces a subordinate to do something consistent with a set of higher ideals or values is using inspirational appeal. g) Information distortion, an unethical method of using power, is withholding or distorting information to influence subordinates‘ behavior. If subordinates discover they were misled, they will lose confidence and trust in their manager‘s leadership.

Group Exercise: Have small groups of students connect specific kinds of power with each of the potential uses of power. That is, each potential use of power relies on or assumes that the manager has one or more kinds of power.

Discussion Starter: Ask students to critique each use of power in terms of its likely effectiveness and acceptability.

II.

GENERIC APPROACHES TO LEADERSHIP Early approaches to the study of leadership assumed there was one set of answers to the leadership puzzle. They adopted a ―universal‖ or ―generic‖ perspective. One generic approach focused on leadership traits, the other looked at leadership behavior.

A.

Leadership Traits Research in leadership began by trying to generate ―the profile" of a leader, including traits such as intelligence and self-confidence. This approach assumed that some basic set of traits differentiated leaders from nonleaders, making them ‗identifiable‘.

The results were disappointing. For every common trait identified, a long list of exceptions were also found. The list soon became too long to be of any useful value.

Extra Example: Other traits that have been suggested as determinants of leader effectiveness include astrological sign, birth order, body shape, and handwriting style.

Teaching Tip: Point out to students the assumptions about leadership traits sometimes play a role in political races. For example, some people questioned H. Ross Perot‘s political skills because of his height, and others criticized Bill Clinton because he has tended to have a weight problem. Still, Clinton defeated George Bush, in part due to what some people called Bush‘s ―wimp factor.‖ Perhaps ―wimpiness,‖ then, is also a trait!

B.

Leadership Behaviors 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.

1.

The Michigan studies (conducted by Likert at the University of Michigan, 1940‘s) Based on extensive interviews, this research identified two basic forms of leader behavior: job-centered and employee-centered.

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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.

These behaviors were thought to be at opposite ends of one continuum with employeecentered leaders being the more effective.

Cross-Reference: Note that the Michigan studies were part of the same research programs that led to the identification of Systems 1 (bureaucratic and rigid) through 4 (organic and flexible) forms of organization design, as discussed in Chapter 11. So moving from a System 1 to a System 4 also involved moving from a job-centered to an employee-centered leader behavior.

2.

The Ohio State University studies also found two basic leader behaviors or styles: initiating-structure behavior and consideration behavior.

When using initiating-structure behavior, the leader clearly defines the leadersubordinate 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.

Unlike the Michigan studies, each behavior was assumed independent of the other. The Ohio State researchers expected to find leaders who exhibited high levels of both behaviors but ultimately had to conclude that situational influences occur making consistent prediction difficult.

Teaching Tip: It may help to sketch the distinction between the one-dimensional Michigan view and the two-dimensional Ohio State approach.

Extra Example: The Ohio State studies involved one of the earliest known attempts to train managers to be more effective leaders.

3.

The Managerial Grid is another behavioral approach to leadership providing a means for evaluating leadership styles and then training managers to move toward an ideal style of behavior.

The horizontal axis represents concern for production (similar to job-centered and initiating-structure behaviors) and deals with the job and task aspects of leader behavior.

The vertical axis represents concern for people (similar to employee-centered and consideration behaviors) and deals with the human aspects of leader behavior.

Note the five extremes of managerial behavior: The 1,1 manager (impoverished management) 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.

The 9,9 manager(team management), who exhibits maximum concern for both people and production. This is the ‗ideal‘ style of managerial behavior.

Management 12e by Ricky W. Griffin Extra Example: The Managerial Grid is used as an organization development technique.

Organizations buy the program and use it to enhance behavioral processes and dynamics.

Extra Example: The reason that little scientific evidence exists regarding the grid is that users must sign a contract specifying that they will not allow outsiders to evaluate it.

The leader-behavior theories played an important role in the development of contemporary thinking about leadership. They urge us not to focus on a leaders traits but to concentrate on what leaders do, their behaviors.

New approaches were needed and the catalyst 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.

III. SITUATIONAL APPROACHES TO LEADERSHIP Situational models assume that appropriate leader behavior varies from one situation to another.

The goal of situational theory is to identify key situational factors and to specify how they interact to determine appropriate leader behavior.

An important early model laid the foundation for subsequent developments. In 1958, Robert Tannenbaum and Warren H. Schmidt proposed a continuum of leadership behavior.

Their model is much like the original Michigan framework. Besides job-centered behavior (or ―boss-centered‖ behavior, as they termed it) and employee-centered (―subordinate-centered‖) behavior, they identified several intermediate behaviors.

This continuum of behavior moves from one extreme, of having the manager make the decisions alone, to the other extreme, of having the employees make the decision with minimal guidance.

Each point on the continuum is influenced by characteristics of the manager, the subordinates, and the situation. Though helpful, it was only speculative.

In the following sections, the text describes four of the most important and widely accepted situational theories of leadership: the LPC theory, the path-goal theory, Vroom‘s decision tree approach, and the leader-member exchange approach.

Cross-Reference: Note that situational approaches to leadership are consistent with the contingency perspective on management introduced and discussed in Chapter 2.

Teaching Tip: Even though it is many years old, Tannenbaum and Schmidt‘s leadership continuum, presented in Figure 16.2 is still is an effective way to introduce the idea of situational approaches to leadership.

Interesting Quote: One early practitioner of situational leadership was President Lyndon Johnson. This quote is from his description of how he handled different reporters during an interview published in The Atlantic Monthly, January 1976, p. 78: ―You learn that Mary McGrory likes dominant personalities and Doris Fleeson cares only about issues, so that when you‘re with McGrory you come on strong and with Fleeson you make yourself sound like some impractical red-hot liberal.‖

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Teaching Tip: The three scales presented here in the text are, of course, only part of the LPC questionnaire. Obtain a copy of the complete instrument and have your students complete it. Use their results as part of the discussion of the LPC theory.

A.

Least-Preferred Coworker (LPC) Theory The LPC theory is a theory of leadership that suggests that the appropriate style of leadership varies with situational favorableness. Developed by Fred Fiedler, this was the first true situational leadership theory. Beginning with a combined trait and behavior approach, Fiedler identified two styles of leadership: task oriented and relationship oriented.

1.

2.

First, Fiedler measures leadership style by means of a controversial questionnaire called the least preferred coworker (LPC) measure. The leader thinks of the worker he or she is least able to work with while filling in a set of 16 scales anchored at each end by a positive or negative adjective. The total score for the scale presumably reflects the leader‘s personality type as either task-oriented or relationship-oriented.

Next, the situation is assessed. Fiedler believed that the favorableness of the situation is the most important situational factor. Favorableness is determined by three things. a) Leader-member relations refers to the trust and respect that exist between the leader and the work group. Good relations are more favorable.

Discussion Starter: The LPC theory suggests that leader-member relations is the most important of the three determinants of situational favorableness, while position power is the least important of the three. Solicit student opinions on this importance ranking. b) c)

Task structure measures the degree to which the group‘s task is well defined. High structure is more favorable.

Position power, which assesses the power vested in the leader‘s position, is favorable when the leader has authority and controls rewards.

Teaching Tip: Have students write hypothetical scenarios representing various levels of each aspect of favorableness.

3.

4.

5.

When the situation is the highly favorable or highly unfavorable, the best leadership style is task-oriented. Relationship-oriented leaders are best in situations that are neither highly favorable nor highly unfavorable.

Fielder argues that since the leader‘s style is fixed, the situation should be changed to match the leader in order to make him or her most effective.

While Fiedler‘s theory is often criticized, it was the first to adopt a situational perspective on leadership.

Discussion Starter: Fielder asserts that leader behavior is inflexible and cannot be readily changed. Ask students if they agree or disagree with this assertion. If Fiedler‘s theory is valid, what implications might be drawn regarding leadership training programs?

B.

Path-Goal Theory 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 those rewards.

1.

The most fully developed version of path-goal theory identifies four kinds of leader behavior. a) Directive leader behavior lets subordinates know what is expected of them, gives guidance and direction, and schedules work. b) Supportive leader behavior is being friendly and approachable, showing concern for subordinates‘ welfare, and treating members as equals.

Management 12e by Ricky W. Griffin c)

Participative leader behavior includes consulting with subordinates, soliciting suggestions, and allowing participation in decision making. d) 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 leaders can change their style or behavior to meet the demands of a particular situation.

2.

Path-goal theory suggests that the appropriate leadership style depends on two situational factors: the personal characteristics of subordinates and environmental characteristics of the workplace.

Personal characteristics includes a person‘s perception of their own abilities and their locus on control. Environmental characteristics include factors outside the subordinates‘ control, such as task structure, the formal authority system or the nature of the work group.

Teaching Tip: Point out for students the logic underlying this theory‘s somewhat awkward name: the theory asserts that the leader‘s primary function is to clarify for subordinates the path to their goals. That is, the leader can enhance subordinate performance by determining what subordinates want (their goals) and then making those goals clearly linked to performance (i.e., the path).

Cross-Reference: The path-goal theory of leadership is a direct extension of the expectancy theory of motivation discussed in Chapter 15. Recall that expectancy theory suggests that motivation is a function of how much we want something and how likely we think we are to get it. The path-goal theory says that a leader should clarify the likelihood of getting desired outcomes or goals.

Discussion Starter: Note that in contrast to the LPC theory, path-goal theory suggests that leaders can alter their behavior. Poll your students to determine whether they agree.

C.

Vroom‘s Decision Tree Approach Cross-Reference: Note that Vroom was also one of the primary expectancy theorists, as discussed in Chapter 15.

Vroom’s decision tree approach uses a situational model of leader behavior to predict what kinds of situations call for what degrees of group participation.

1.

Vroom‘s formulation suggests managers use one of two different decision trees, a timedriven decision tree and a development-driven decision tree. 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, and so on until the manager reaches a terminal node identifying an effective decision-making style for the situation.

2.

The various decision styles at the ends of the tree branches represent different levels of subordinate participation. The five styles are defined as follows: Decide. The manager makes the decision alone then announces it to the group.

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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.

3.

The original model has been supported by research, while the newer model has not yet been fully tested. However, the model is also very complex, which makes it difficult to use. Automated methods make the model easier.

Teaching Tip: When the Vroom model was introduced, a consulting firm marketed a device similar to a calculator for using the model. The user pressed yes/no buttons to answer the questions, and the display indicated the appropriate style of decision making.

Teaching Tip: The Vroom model is very complex and may be difficult for students to grasp. Walk through several examples based on different scenarios, using the trees in Figure 16.5 and Figure 16.6 references. Ask students to notice especially the differences in the decision trees for use in situations that are or are not time-driven.

Global Connection: Japanese managers have become very interested in learning how to use the Vroom model.

D.

The Leader-Member Exchange Approach The leader-member exchange (LMX) model of leadership stresses the fact that leaders have different kinds of relationships with different subordinates. Each superior-subordinate pair is referred to as a ―vertical dyad.‖ Those close to the manager are ―the in-group‖ members who receive better treatment than ―the out-group‖ members.

Discussion Starter: Ask students if they have ever experienced in-group/out-group treatment. Ask if they have ever observed a leader treating subordinates in different ways.

IV. RELATED APPROACHES TO LEADERSHIP A.

Substitutes for Leadership Substitutes for leadership identifies situations in which leader behaviors are neutralized or replaced by characteristics of subordinates, the task, and the organization.

For example, highly experienced employees do not need to be told what to do.

Task characteristics, such as simplicity in routine tasks, does not require leadership.

Organizational characteristics such as formal and inflexible policies substitute for leadership.

Discussion Starter: Ask students to identify leadership substitutes that might work in a classroom setting (e.g., structured assignments, group projects, etc.).

B.

Charismatic Leadership Charismatic leadership assumes that charisma is an individual characteristic of the leader.

Charisma is a form of interpersonal attraction that inspires support and acceptance.

Management 12e by Ricky W. Griffin Someone with charisma is more likely to influence others than someone without charisma.

Experts acknowledge three elements of charismatic leadership in organizations.

1. Charismatic leaders envision the future and have high expectations.

2. Charismatic leaders use enthusiasm and prior success to energize others.

3. Charismatic leaders support other and express confidence.

Discussion Starter: Ask students to identify popular charismatic leaders today and/or ask students to debate the ethics of charismatic leadership.

C.

Transformational Leadership Transformational leadership is 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 seen as vital to the success of business.

Teaching Tip: Some experts have noted that while transformational leaders may be perceived as highly effective during organizational transformation, they are often perceived as less effective when leading after transformation is completed.

V.

EMERGING APPROACHES TO LEADERSHIP A.

Strategic Leadership Strategic leadership is a new concept the explicitly relates leadership to the role of top management.

Strategic leadership is the capability to understand the complexities of both the organization and its environment and to lead change in the organization in order to achieve and maintain a superior alignment between the organization and its environment.

Strategic leadership is effective when leaders understand the capabilities of their firm, the firm‘s environment, how the firm is currently aligned with its environment, and the direction of important trends.

Cross-Reference: Note that strategic leadership is closely related to the discussion of strategy and strategic management that is found in Chapter 7.

B.

Cross-Cultural Leadership Effective cross-cultural leaders understand cultural and national differences and also the diversity that exists within a national culture.

As organizations become more global and more diverse, cross-cultural leadership will become more important.

C.

Ethical Leadership In the wake of recent corporate scandals, managers are being called upon to demonstrate sound ethical principles and serve as ethical role models.

When hiring new leaders, businesses are looking closely at the background of those considered. Emerging pressure for stronger corporate governance will further increase commitment to hiring only those with high ethical standards and to hold them accountable for both their actions the consequences of those actions.

VI. POLITICAL BEHAVIOR IN ORGANIZATIONS © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. .

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Political behavior consists of 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 directed upward, downward, or laterally.

In most organizations, political behavior is perceived to be widespread, and top levels are thought to be more political than are lower levels.

Discussion Starter: Ask students if they think an organization can function without some form of political behavior. Ask if they think political behavior is more likely to have positive or negative effects on an organization.

A.

Common Political Behaviors 1. Inducement occurs when something is given in return for support.

2. Persuasion relies on manipulation of logic and emotions.

3. When a manager does a favor in hopes of receiving one in return, that is called creating an obligation.

4. Coercion, or the use of force, may be effective in the short-term, but it is often ineffective in the long-term.

B.

Impression Management Impression management a direct and intentional effort by someone to enhance his or her image in the eyes of others.

People engage in impression management to further their careers, receive rewards, garner attractive job assignments, receive promotions, boost their self-esteem or gain power and control.

People use several mechanisms to manage how others perceive them, such as appearance and association. If too strongly motivated by impression management, it could lead to dishonest or unethical means, such as taking credit for the work of others, or exaggerating their accomplishments.

C.

Managing Political Behavior There are some guidelines for effective management of political behavior.

1.

2.

3.

4.

5.

6.

Be aware that others may assume your motives are political even if they are not.

Give subordinates autonomy, responsibility, challenges, and feedback to reduce political behavior.

Avoid using power if possible.

Get disagreements out in the open, reducing the effectiveness of politics.

Avoid covert activities to avoid even the perception of political behavior.

Keep performance evaluations transparent, tie rewards directly to performance, and minimize competition among mangers for resources.

These guidelines are much easier to list than they are to implement. Managers must recognize that political behavior exists and they must manage it in such as way that it will seldom inflict serious damage on the organization.

Discussion Starter: Ask students to recall instances of positive and negative political behavior they may have observed.

Management 12e by Ricky W. Griffin

END OF CHAPTER 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?

Managers are responsible for planning, budgeting, organizing, staffing, controlling, and problem solving. Leaders establish direction, align people, motivate, and inspire. A firm needs to achieve results in an orderly fashion, which falls in the domain of management, and it also needs to energize and inspire its workers, which is the role of leadership.

2.

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

Situational approaches assume that appropriate leadership style varies from situation to situation.

LPC theory outlines two leadership styles: task-oriented and relationship-centered. Leadership style is assessed by the LPC measure. The LPC model suggests that leader behavior is a function of situational favorableness. The path-goal theory of leadership suggests that leadership can be enhanced by helping subordinates clarify paths to goal attainment and by rewarding behavior to ensure that good performance is a direct path to positive outcomes. Four styles of leader behavior have been identified: (1) directive, (2) supportive, (3) participative, and (4) achievement-oriented behavior. The Vroom decision tree approach focuses only on decision making and leadership. The basic premise is that effective decisions are best gauged by the quality of the decision and by employee acceptance of the decision.

3.

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

Subordinate‘s characteristics include the subordinate‘s perception of his or her own abilities and the subordinate‘s locus of control. Leader behaviors can be either directive, supportive, participative, or achievement-oriented. Characteristics of the environment include task structure, authority system, and social support from the work group. Path-goal theory asserts that effective leaders will choose from the four types of leader behavior the one that best fits the demands of the situation including characteristics of the subordinates and the environment.

4.

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

In their definitions, students should include power and its use to obtain desired outcomes.

Inducement occurs when something is offered in exchange for support. An employee may suggest a cost-cutting measure in exchange for a promotion. Persuasion happens when a manager changes the opinions of others based on emotion or logic. A manager may prevail in a disagreement with peers by offering superior evidence in support of his or her views. Managers create obligations by doing favors and then asking for favors in return. An employee may ―cover‖ for a tardy co-worker in exchange for a similar favor the following day. Coercion involves the use of force or threats.

Managers who threaten to lay off workers who disagree with them are using coercion.

Questions for Analysis 5.

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?

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The trait approach is intuitively appealing, in spite of lack of empirical support. People want to believe in a theory that is simple, consistent, and broadly applicable, for example, that great leaders are physically attractive. Those who knowingly reject trait theories often display them unconsciously, for example, expecting that a tall person is a more effective leader than a short one.

The trait approach can be helpful if the traits are skills, such as communication, that are in fact related to effective leadership. However, trait theories do harm when they lead us to focus on inappropriate variables, such as height or attractiveness, that have no relationship to leadership ability.

6.

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.

Opinions will vary, and students should be able to give examples to support their responses. The same is true for answers about an ideal leadership style.

7.

A few universities are experimenting with alternative approaches, such as allowing students to design their own majors, develop a curriculum for that major, choose professors and design courses, or self-direct and self-evaluate their studies. These are examples of substitutes for leadership. Do you think this will lead to better outcomes for students than a traditional approach? Would you personally like to have that type of alternative approach at your school? Explain your answers.

Better outcomes could be expected to the extent that students are intelligent, experienced, and knowledgeable in designing curriculum. However, most students will acknowledge that professors often have better skills in this area and should be allowed to make decisions. Students may prefer a student-directed approach if they are confident of their abilities and like to have control and power.

Other students, who are more cautious or retiring, would prefer that decisions be made for them.

Questions for Application 8.

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.

The President has legitimate power through his job description, he may have referent power to the extent that members of the military look up to and admire him, and he may have expert power if he has served in the military. An airline pilot has legitimate power through the employer; he or she could conceivably have coercion power, but it‘s unlikely he or she would use it (―Do what I want or I‘ll crash this plane.‖); he or she has referent power if passengers look up to them; and a pilot would have expert power on an airline flight. A movie star primarily has referent power as a role model or a charismatic leader, and may have expert power if he or she is seen as an expert in some aspect of film making. Teachers have legitimate power through their schools; they have reward and coercive power through their awarding of attention, praise, grades, and reprimands; they have referent power if students admire them; and they have expert power because of their subject knowledge.

Clearly, the type of power a leader has depends heavily on the leadership situation. For example, a manager may not have coercive power because he or she may not have the capability of punishing

Management 12e by Ricky W. Griffin co-workers, but they probably have coercive power as a parent because they can administer spankings or other disciplinary actions.

9. 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? Student responses will vary but an example might be as follows. Course schedules: (1) quality requirement—low; it really doesn‘t matter when the courses are scheduled; (2) commitment requirement—low; it really doesn‘t matter if students are enthusiastically committed to particular course schedules. (3) The Vroom decision tree model then suggests that departments should make course schedules without any real involvement of students.

10. 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?

Clearly, answers will vary. Students should recognize that in-groups have closer relationships with leaders than do out-groups. The relationship between members of in-groups and out-groups is typically strained with misunderstandings and resentments on both sides. Leaders may benefit from the dynamics of in-group/out-group interactions if the in-group members are in fact the most trusted and highest performing workers. If not, the outcome may be too much conflict. Members of the ingroup are likely to experience better outcomes than members of the out-group. Organizations may benefit from the high performance of in-group members, but they can suffer negative consequences from the unhealthy competition and stress.

END OF CHAPTER EXERCISES Building Effective Interpersonal Skills I.

Purpose This exercise asks the students to examine the ways their attitudes toward work relationships reflect their political behavior in the workplace.

II.

Format Students are given 20 statements that describe their use – actual or planned – of the described behavior when they are on the job. They are asked to rate their response (rarely, occasionally, or usually) to these questions.

III. Follow-Up Students are asked to add up the total of responses that range from 20-100. Using the instructions given in the exercise, they can determine their use of political power.

Building Effective Conceptual Skills I.

Purpose Students will improve their conceptual skills through this exercise, which asks them to analyze an instrument that purports to measure leadership.

II.

Format Students must work outside of class to find and complete the leadership quiz individually.

Discussion Questions 2 through 4 can be written or discussed in class, by individuals, small groups, or the entire class. The quiz will take about 10–15 minutes to complete and discussion time will vary.

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III. Follow-Up A. Visit Fortune magazine‘s web site at http://www.fortune.com/fortune/quizzes/careers/boss_quiz.html. Take the leadership assessment quiz devised by management guru Stephen R. Covey. Then, look at Covey‘s scoring and comments.

B. Review carefully each question and each suggested answer. Do you see any correlation between Covey‘s questions and the theoretical models of leadership discussed in this chapter?

Which model or models do you think Covey is using? What details in his questions, answers, or both led you to that conclusion?

Covey‘s leadership quiz measures such things as a manager‘s time management, communication, delegation, motivating, goal-setting, and other skills. Students will find many connections between Covey‘s questions and a leadership model. For example, one item asks students to agree or disagree with the statement, ―Paying people well is the best way to motivate them.‖ This approach to motivation is mentioned many times in Chapter 17.

C.

Use the Internet to investigate Covey‘s background, training, and experience. Does the information you‘ve gathered give you any clues about Covey‘s attitudes and opinions about leadership? Do you see any connection between Covey‘s attitudes and the items on his quiz?

Explain.

Students may relate Covey‘s family life, education, or religious background to his principles.

For example, Covey has 9 children and 36 grandchildren, which may provide a clue to his attitudes towards family and personal time. That attitude is also prevalent in his work on leadership, including this quiz.

D.

Based on what you‘ve learned from this exercise, how confident are you that Covey‘s quiz is an accurate measure of leadership ability? Explain.

The quiz clearly asks questions that have a reasonable relationship to leadership. However, there is no indicator that this quiz has any empirical support. Nor is it likely that the quiz measures every aspect, or even the most important aspects, of leadership. Finally, the students should realize that self-styled leadership tests including this one are very prevalent, and most are in fact not scientifically based or verifiable.

MANAGEMENT AT WORK A Critique of Practical Leadership The closing case describes ING Direct Canada, launched in 1997 by veteran Canadian banker Arkadi Kuhlmann. The new direct banking business model featured no-frills, high-rate savings accounts, only accessible online. Kuhlmann‘s vision was to lead Americans back to saving and his mission was to simplify financial products. Kuhlmann believes a leader must be the driving force behind the company‘s culture, saying: ―I believe you need to direct the culture and let the culture direct the business.‖ He believes the culture is what attracts and keeps committed employees.

Management Update: ING Direct was bought by Capital One in 2012 and changed the company name to Capital One 360. The company was one of only a handful of banks that were included in the launch of Apple Pay in 2014.

1.

Case Question 1: First, review the definition and discussion of ―The Organization‘s Culture in Chapter 3. 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?

The LPC theory suggests management change the situation if it does not align with the manager‘s leadership style. In order to change the situation managers could change the task (new procedures

Management 12e by Ricky W. Griffin or guidelines) or change the power structure (gaining authority or delegating authority). If not communicated properly, a strong culture and organizational politics could undermine these changes.

There may not any problems if the culture is weak and disorganized with little office politics. The path-goal theory would seem easier to incorporate into the culture. This may meet resistance if workers perceive themselves as unable to perform or have an external locus of control. The decision tree approach has proven effective but complex. If the organizational culture is not accepting of adopting this approach, it could be easily undermined. In the case study, ING Direct may be accepting of this theory. They have a strong culture and with training could effectively implement the decision tree theory. Culture and organizational politics could play a role in acceptance of the LMX theory. If implemented into a strong, cohesive culture, this could be quite disruptive.

2.

Case Question 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.

Situational models assume that appropriate leader behavior varies from one situation to another.

The goal of a situational theory is to identify key situational factors and to specify how they interact to determine appropriate leader behavior. Kuhlmann‘s ―culture-driven leadership‖ ties the company‘s mission, vision, and culture together. The leader must state the mission and embody the company‘s cause. The leader must be the driving force behind the company‘s culture. Kuhlmann believes you direct the culture and let the culture direct the business. Kuhlmann‘s approach is to take a broader view of leadership than situational models. He believes with the right culture and the right vision, everyone will have the same focus.

3.

Case Question 3: 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.

First, review the section in the text on ―Transformational Leadership‖ and, if necessary, the discussion in Chapter 15 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.

Kuhlmann‘s ―culture-driven leadership‖ could be seen as transformational leadership. Kuhlmann went beyond ordinary expectations by transmitting a strong sense of mission in his search for simplified banking options, stimulated learning experiences by leading the online banking industry, and inspired new ways of thinking by doing away with brick and motor bank branches.

4.

Case Question 4: 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

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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.† 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.

Responses to the questions will vary based on how students perceive their attitudes toward work life. *Jim Allen McClesky, ―Situational, Transformational, and Transactional Leadership and Leadership Development,‖ Journal of Business Studies Quarterly, 2014, Vol. 4, No. 4, pp. 117-130, http://ibsq.org, on April 22, 2015. †Chris Barth, ―Corporate Culture for the Protest Generation,‖ Forbes, December 12, 2011, www.forbes.com, on April 23, 2015.

CHAPTER 17

Managing Interpersonal Relations and Communication

CHAPTER SUMMARY This chapter is the first of two that focuses on interpersonal processes in organizations. The text first establishes the interpersonal nature of organizations and then discusses communication, one of the most basic forms of interaction among people. The text begins by examining communication in the context of the manager‘s job. Then the text identifies and discusses forms of interpersonal, group, and organizational communication. After discussing informal means of communication, the text describes how organizational communication can be effectively managed. In the next chapter, the authors discuss other elements of interpersonal relations: group and team processes and conflict.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe the interpersonal nature of organizations.

Management 12e by Ricky W. Griffin 2.

Describe the role and importance of communication in the manager‘s job.

3.

Identify the basic forms of communication in organizations.

4.

Discuss informal communication, including its various forms and types.

5.

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

MANAGEMENT IN ACTION Socializing The opening case describes Humana‘s decision to install a enterprise social network (ESN) in order to improve internal communication. There were two purposes for Buzz, the new network. First, the company wanted the service to help them accomplish their business objectives, and second, to help them establish positive interpersonal relationships around areas of mutual interest. Buzz proved useful in facilitating Q&A and feedback from companywide events called ―Buzz Town Halls.‖ The CEO is a regular contributor to Buzz.

Discussion Starter: Ask students if they experience an internal social network like Yammer where they work. If so, is the network used regularly? What types of postings are the norm? Do students feel the network is useful, or a distraction?

LECTURE OUTLINE I.

THE INTERPERSONAL NATURE OF ORGANIZATIONS A vital part of all managerial activities is interpersonal relations, communication, and group processes.

Teaching Tip: Have students keep a one-day log of their own activities similar to the one in the text. Note how many of the activities involve interactions with others.

Teaching Tip: With the log in the text, note its quantity and diversity of communication.

The manager read, talked, listened, and observed information about specific management functions, general management issues, sports, employees, and more.

Cross-Reference: As noted in Chapter 1, most of a manager‘s time is devoted to scheduled and unscheduled meetings, email, and telephone calls.

A.

Interpersonal Dynamics The nature of interpersonal relations generally falls on two continua between personal and impersonal, and positive and negative.

B.

Outcomes of Interpersonal Behaviors Some of the possible outcomes of interpersonal behaviors include satisfying needs, gaining social support, a source of energy, or creating conflict. A common thread through all of these outcomes is communication between people in the organization.

Teaching Tip: A good way to summarize the material about outcomes of interpersonal behaviors is with a 2 × 2 matrix. Draw such a matrix on the board, label one axis positive

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versus negative, label the other personal versus impersonal, and show how different outcomes can be classified into one of the four cells.

II.

COMMUNICATION AND THE MANAGER‘S JOB Managers usually spend over half 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.

Interesting Quote: ―Real communication takes countless hours of eyeball to eyeball, back and forth. It means more listening than talking.‖ (Jack Welch, CEO of General Electric, Harvard Business Review, September–October 1989, 113.) Although this quote was made in 1989, it remains true even today, particularly the importance of listening.

A.

A Definition of Communication 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. Meaning is the idea the individual sending the communication wishes to covey.

Teaching Tip: Stress the critical differences between simple communication and effective communication. The differences in the two are subtle but important.

B.

The Role of Communication in Management Managers use communication in order to fulfill each of the ten basic managerial roles they enact and to carry out the basic management functions of planning, organizing, leading and controlling.

Teaching Tip: Stress the fact that communication is a major ingredient in all management functions—planning, organizing, leading, and controlling.

C.

The Communication Process 1. The communication process begins when one person (the sender) wants to transmit a fact, idea, opinion, or other information to someone else (the receiver). This information has meaning to the sender, whether simple and concrete or complex and abstract.

2. The sender encodes the meaning into an appropriate form. The encoding process is influenced by the content of the message and other situational factors.

3. The message is then transmitted through an appropriate channel (for example, a memo or phone call).

4. The message is received and decoded back into a form that has meaning for the receiver.

The consistency of this meaning can vary dramatically.

5. The message may prompt the receiver to initiate a message of his or her own, and the cycle continues.

6. ―Noise‖, anything that disrupts the process, can occur anywhere along the communication path.

Discussion Starter: Ask students to identify other possible examples of noise.

Extra Example: Other examples of noise include erasing a telephone message before listening to it or addressing an email to the wrong recipient.

Group Exercise: Have small groups of students diagram a series of communication exchanges to ensure they understand how the process occurs.

Management 12e by Ricky W. Griffin

Teaching Tip: Select a hypothetical piece of information that you could conceivably want to impart and use it as a reference as you walk through the communication process.

III. FORMS OF COMMUNICATION IN ORGANIZATIONS A.

Interpersonal Communication 1. Oral communication takes place in face-to-face conversations, group discussions, telephone calls, and other circumstances in which the spoken word is used to express meaning.

Though oral communication provides prompt feedback and does not require a great deal of preparation or as much skill as written communication. Oral communication may suffer from inaccuracy if the meaning is not relayed or retained by the receiver. Quick conversation does not allow for thoughtful, considered responses and there is the lack of a permanent record.

2.

Written communication is memos, letters, reports, notes, and other circumstances in which the written word is used to transmit meaning.

This method of communication inhibits feedback and interchange and is often more difficult and time consuming than oral communication. However, written communication is usually quite accurate and the receiver can take time reviewing it. It provides a permanent written record. This is preferable when important details are involved.

Discussion Starter: Ask students if they prefer oral or written communication.

Extra Example: This book is a form of written communication through which a professor of Management at Texas A&M University is communicating with your students.

Extra Example: At Greyhound, copies of all reports describing why a reservation system failed to work effectively have been destroyed. As a result, top managers report that they do not recall earlier discussions regarding the system‘s weaknesses.

3.

Choosing the right form The situation determines the best medium. Oral communication is better when the message is personal, nonroutine, and brief. Written communication is better when the message is more impersonal, routine, and longer.

The manager can combine media to capitalize on the advantages of each. A quick phone call gets immediate feedback and a follow-up email provides a permanent record.

Discussion Starter: Ask students to recall the last few times they needed to communicate information to someone else. Then ask them what method they used and why.

B.

Communication in Networks and Work Teams A communication network is the pattern through which the members of a group communicate.

Various patterns exist in three, four, or five person teams. In the wheel pattern, all communication flows through one central person who probably is the group‘s leader. This is the most centralized network.

The Y pattern is slightly less centralized, two people are close to the center.

The chain offers a more even flow of information but the two people on each end only interact with one other person. This path is closed in the circle pattern.

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The all-channel network is the most decentralized, allowing a free flow of information among all group members. Everyone participates equally.

Centralized networks work with the greatest efficiency and accuracy when the group‘s task is simple and routine. When the task is complex and nonroutine, decentralized networks tend to be most effective as open channels of communication permit more interaction and sharing.

Group Exercise: Have students diagram different forms of communication networks that might be identified in three- and four-person groups.

Extra Example: The growing use of teams has spawned many new terms. For example, ―blamestorming‖ refers to a group discussing where to place blame for a problem. A ―salmon day‖ refers to a day spent swimming upstream and not getting anywhere.

C.

Organizational Communication Other forms of communication in organizations are those that flow among and between organizational units or groups. Each involves oral or written communication and extends across the organization. Two of these forms follow vertical and horizontal linkages.

1. Vertical communication flows up and down the organization, usually along formal reporting lines; takes place between managers and their superiors and subordinates and may involve several different levels of the organization. Should be two-way. a) Upward communication consists of messages from subordinates to superiors.

Usually involves requests, suggestions, complaints, and financial information.

Upward communication is more subject to distortion than downward because subordinates are more likely to withhold information that makes them look bad. b) Downward communication occurs when information flows down the hierarchy from superiors to subordinates. Typically involves directives, assignments, feedback, and general information.

2. Horizontal communication flows laterally within the organization, involves colleagues and peers at the same level of the organization and may involve individuals from several different organizational units. Probably occurs more among managers than among nonmanagers. It facilitates coordination, helps in problem solving, and plays a major role in work teams with members drawn from several departments.

Cross-Reference: In Chapter 10 we described several coordination techniques. Note the role and importance of horizontal communication as a part of coordination.

Global Connection: Language barriers are often a complication in horizontal communication within multinational organizations.

D.

Electronic Communication Electronic communication has taken on greater importance for managers. Both formal information systems and personal information technology have reshaped how managers communicate with one another.

1. Formal information systems link various areas of the organization by computer; they can also be used to create effective communications. Many firms are placing the task of developing a formal information system on the chief information officer (CIO).

2. Personal electronic technology refers primarily to email, cell phones, and personal digital assistants (also known as PDAs or handheld devices).

While electronic communication helps workers stay in touch, it can add to stress. Another risk is that electronic communication comes at the expense of face-to-face meetings and

Management 12e by Ricky W. Griffin conversations, making it hard to build a strong culture, develop solid working relationships, and create a mutually supportive atmosphere of trust and cooperativeness.

Extra Example: Another advantage of electronic communication is the increased efficiency of workers. On the other hand, too much access to electronic communication can add to stress because workers are never unavailable for work demands.

Extra Example: A recent visitor to DisneyWorld in Florida noted that most of the visitors using a free Internet café were on the machines to catch up with office work. It seems that technology has even invaded our family vacations!

Discussion Starter: Poll your students to see how many of them use email regularly. Ask them for their views as to its advantages and disadvantages.

IV. INFORMAL COMMUNICATION IN ORGANIZATIONS The forms of organizational communication discussed so far have been formal communication mechanisms. In some cases, communication transcends these formal channels and instead follows any of several informal methods. Common forms include the grapevine, management by wandering around, and nonverbal communication.

A. The Grapevine The grapevine is an informal communication network among people in an organization.

The two most common forms of the grapevine are the gossip chain in which one person spreads the message to many other people. Each may either keep the information or pass it on to others. The gossip chain is likely to carry personal information.

The cluster chain happens when one person spreads the information to a select few. Some of the receivers pass the information along, the rest keep it to themselves.

The grapevine spreads ―gossip,‖ but it can be fairly accurate and studies show informal communication is increasing due to job instability and instantaneous information.

Attempts to eliminate the grapevine are useless. By maintaining open channels of communication and responding vigorously to inaccurate information, managers can minimize the damage the grapevine can do. Managers can learn how to effectively use the grapevine to enhance their communications.

Discussion Starter: Ask students to recount some of their grapevine experiences.

Extra Example: Students use grapevines to transmit information about specific classes and instructors (e.g., who is easy, which course is interesting, etc.).

Discussion Starter: Solicit student examples of when the aforementioned types of information transmitted through the grapevine have been both accurate and inaccurate.

B.

Management by Wandering Around Management by wandering around is an approach to communication that involves the manager‘s literally wandering around and having spontaneous conversations with others.

A related aspect of informal communication is the informal interchange among employees that takes place outside the workplace. They serve the important role of promoting a strong culture and enhancing understanding of how the organization works.

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C.

Nonverbal Communication Nonverbal communication is any communication exchange that does not use words or uses words to carry more meaning than the strict definition of the words themselves.

This is a powerful but little-understood form of communication relying on facial expressions, body movements, physical contact, and gestures.

1.

Images are created by the kinds of words people elect to use.

Teaching Tip: Use images from current publications to illustrate and discuss different forms of nonverbal communication.

2.

Settings refer to where the communication takes place.

Teaching Tip: If you don‘t mind the invasion of privacy, ask students to comment on how the arrangement of your office influences communication that occurs within it.

3.

Body language includes how we use our arms, hands, legs, and eyes; where we choose to stand; how we dress; or where we pause when speaking.

Discussion Starter: Ask students for other examples they have observed or experienced that involved nonverbal communication.

Managers should be aware of the messages that are sent through their use of body language. They should work to ensure that their spoken, written, and nonverbal communications all send the same message.

V.

MANAGING ORGANIZATIONAL COMMUNICATION Managers must understand how to maximize the potential benefits of communication and minimize the potential problems.

A. Barriers to Communication 1. Individual barriers are associated with individuals and include the following types. a) Conflicting or inconsistent signals. b) Lack of credibility about the subject.

Extra Example: During a meeting with an important client, a partner in a consulting firm walked up to an air conditioning unit in the computer operations center, placed his hand on it, and said, ―I can remember my days coding software for these babies.‖ The client was understandably amused. However, the consultant‘s subordinates, who were expert programmers, felt humiliated and the partner lost credibility with his employees.

2.

c) Reluctance to communicate. d) Poor listening habits. e) Negative predispositions from the receivers.

Organizational barriers are associated with the organization itself and include the following types. a) Semantics problems arise when words mean different things to different people.

Extra Example: In one example of the semantics barrier, an older male manager happily shouted at a younger female employee, ―You‘re so hot today!‖ What he meant to convey was that he was impressed with her speed in accomplishing a task, but she interpreted the remark as a sexual invitation. b) c)

Status or power differences.

Different perceptions of the same situation.

Management 12e by Ricky W. Griffin d) e) f)

Environmental factors or ‗noise‘.

Overload occurs when the receiver gets more information than they need.

Different languages in use at multinational firms.

Discussion Starter: Ask students to recall instances in which they have encountered one or more of the individual barriers to effective communication.

Discussion Starter: Ask students to recall instances in which they have encountered one or more of the organizational barriers to effective communication.

B.

Improving Communication Effectiveness 1. Individuals can use several techniques to enhance communication effectiveness. a) Develop good listening skills.

Teaching Tip: Stress the importance of listening as the single most important contributor to communication effectiveness.

Discussion Starter: Ask students to characterize themselves in terms of the listening skills illustrated in Figure 17.6, titled ―More and Less Effective Listening Skills‖. b) c) d) e) f)

Feedback is facilitated by two-way communication.

Be aware of language and meaning.

Maintain credibility, be as accurate and honest as possible Be sender should be sensitive to the receiver‘s perspective.

The receiver should be sensitive to the sender‘s perspective.

Discussion Starter: Ask students to recall people with whom they have trouble communicating. Then ask them to explain the factors that led to their difficulties.

Discussion Starter: Ask students to recall situations in which they used one or more of the suggested individual methods for improving communication effectiveness.

2.

Three useful organizational skills can also enhance communication effectiveness for both the sender and the receiver. a) Follow up to ensure that the message was received and understood. b) Regulate information flow to ensure overload does not occur. c) Understand the richness of different media and use appropriate media.

END OF CHAPTER 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?

Communication is the process of transmitting information from one person to another. Effective communication is communication, but in addition, the message received must be close in meaning to the message that was intended. For both the sender and the receiver then, verification of effective communication must involve feedback because each must receive confirmation that the message was received, that its content was clear, and that its content with the intended content.

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?

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Written communication is probably best for long-term retention. The receiver has a written record that can be reviewed and consulted as necessary to recall details. Oral communication may be more effective to transmit subtle nuances of meaning. The sender can select the appropriate words to convey her or his meaning and can also reinforce that meaning nonverbally.

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?

Both oral and written communication be done one-to-one or in large groups, and both involve the use of words. However, oral communication allows the sender to employ body language and other nonverbal communication. Oral communication also makes it easier and quicker to give and receive feedback. Written communication, on the other hand, can efficiently communicate a lot of detailed information accurately. It also allows more time to absorb the message and can be stored as a more permanent record.

4.

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.

Individual barriers include conflicting cues such as when a manager says two things that disagree.

To reduce conflicting cues, managers can work carefully to ensure that their messages are consistent. Credibility barriers occur when a sender is not believed by the receiver; this can be avoided by keeping a reputation for honesty. Reluctance to communicate can be overcome if managers ensure that employees are not penalized for providing frank feedback. Poor listening habits may be improved if the manager concentrates and makes eye contact during communication.

Predispositions limit communication and can be resolved by keeping an open mind.

Organization barriers include semantic difficulties and managers can avoid these by ensuring that their use of language is clear and that words do not convey unintended meanings. Power differences are best resolved by the higher-ranking manager‘s stated willingness to disregard the differences.

Differing perceptions require that managers speak out about their assumptions. Noise disruption, for example, can be reduced if the volume of emails is limited to restrict information overload.

Questions for Analysis 5.

―Personal friendships have no place at work.‖ Do you agree or disagree with this statement, and why?

Students‘ opinions will vary, of course. Students that agree with the statement are likely to point out that friendships lead to satisfied, loyal, and motivated employees and can lead to enhanced creativity and performance. Students that disagree will point out that friendships can create political problems or favoritism and also that time spent socializing can detract from work.

6.

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?

Problems can occur at any step in the communication process. Static on a cell phone connection, mumbling, garbled fax transmission, lost letters, email sent to the wrong receiver, interruptions, and a noisy, distracting communication setting are all examples of noise. There are many different sources of problems and noise, and each requires a different solution. For the examples given above, solutions might include waiting to make an important phone call on a wired phone, enunciating clearly, re-sending faxes, ensuring proper addressing of letters and asking for delivery confirmation, care in sending emails, closing the office door to signal others not to interrupt, and moving to a more quiet setting.

Management 12e by Ricky W. Griffin 7.

How are electronic communication devices (cell phones, e-mail, and websites) likely to affect the communication process in the future? 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.

It seems clear that communication devices will continue to evolve and that communication will soon be possible from virtually anywhere on the planet. Internet connectivity will soon be available anywhere and will be wireless in most areas so that communication can take place easily. Devices will become smaller, lighter, easier to use, more affordable, and will combine features from different devices into one single device.

Electronics enable communication instantly. The devices enable the users to communicate wherever they are rather than being tied to the location where communication equipment is available.

Computers allow the transmission of far more data than would be practical without computers.

On the negative side, the continual presence of communication ability creates stress for some users.

Some users also lack skills in the new communication media—for example, many users do not understand how to write an effective email message.

Questions for Application 8.

What forms of communication have you experienced today? What form of communication is involved in a face-to-face conversation with a friend? A telephone 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?

Students should provide examples of oral communication (for example, discussions, lectures, telephone calls) that have been part of their daily activities. They may mention written communication in the form of notes, letters, textbooks, and computer messages. Face-to-face communication should primarily be oral and nonverbal. Beyond the oral discussion that takes place in conversation, most students will also discuss the nonverbal aspects (that is, the facial gestures or body language). The telephone call should be primarily oral, but some noise—sighs, moans—may be used as a nonverbal method of exaggerating a point. The traffic or crosswalk signal is a nonverbal signal, as is the ―No Smoking‖ sign and the warning area painted on the factory floor.

9.

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.

Of course, responses will vary, but students are likely to find that they encounter a number of different forms of communication. Some common examples might include: viewing traffic signals and signs, reading mail, television watching, phone calls with friends, email or instant messaging, listening to recorded music, attending a lecture class, nodding or waving to passers-by, and face-toface conversations. The types of work-related communication the students experience will differ depending on their work environment.

10. For each of the following situations, tell which form of communication you would use. Then ask the same question of someone who has been in the workforce for at least ten 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.

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

Telling customers that a new 2-for-1 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.

Changes in benefits should be communicated in writing probably through a published brochure and/or on a web site. The need to communicate detailed information, to allow the receivers time to process a complex message, and the importance of written records for legality all play a part in this choice. Asking the boss a quick question could most easily be done with a face-to-face conversation, although email is also a possibility, particularly if the boss isn‘t present at that moment, is at a remote location, or prefers not to be continually interrupted. Telling customers about a promotion could effectively be done on TV or radio with a newspaper ad, with a sign or billboard, or through signs or flyers available at the store itself. Reprimands should be delivered face-to-face, in private, to protect the employee‘s rights and allow them the opportunity to give instant feedback. However, if the reprimand is a repeat of previous complaints and the manager is considering more formal disciplinary action, a written record may also be useful. Reminding workers not to smoke can be done through displays or notices. If the problem is especially acute, then an email or memo reminder could also be used.

Students will benefit from talking to a worker about these choices because they may learn of additional concerns that might not have initially occurred to them such as the need for a written record of complaints when an employee may be terminated.

END OF CHAPTER EXERCISES Building Effective Technical Skills I.

Purpose The students will gather information relevant to an organizational task to practice using the Internet as source of communication.

II.

Format This technical skills exercise will require between 30 and 45 minutes to complete.

III. Follow-Up A. Use the Internet to identify as many as ten possible locations.

B. Using additional information gathered from the Internet, narrow your set of ten locations to three or four.

C. Continuing to use the Internet, find out as much as you can about each of the three or four finalists on your list and be ready to discuss the pros and cons of each as they relate to your selection criteria.

Students will find a wealth of information about cities on the Internet including data such as weather, cost of living, real estate prices, and rail and highway locations.

Building Effective Interpersonal Skills I.

Purpose This in-class exercise builds students interpersonal skills by asking them to analyze nonverbal and verbal communication.

II.

Format Viewing the video segments in this in-class exercise should take about 10 minutes, and discussion should take about 20 minutes more.

III. Follow-Up

Management 12e by Ricky W. Griffin Teaching Tip: This exercise requires you to do some significant preparation outside of class the first time you use this exercise, but the videos can be very valuable for the students and may be re-used.

Ask for 6 students to volunteer as film actors. Alternatively, ask your school‘s drama department or drama club for student volunteers. Reproduce the scenario descriptions given below. Cut out each box.

Pair the volunteers. Give each pair one box from a written scenario (see below) and ask them to improvise an interaction around that scenario. Encourage them to use body language, gesture, tone of voice, and so on, as well as words. They should have some time to plan the improvisation before they are filmed.

Outside of class time, film each pair‘s improvisation. If the improvisation doesn‘t go well or doesn‘t contain enough expression, give feedback to the students and ask them to perform again.

On the day of the exercise, describe Scenario A to the class by reading the initial two sentences of the scenario box. Then play the film of Scenario A without the sound. Ask the students to complete Question 1. Then play Scenario A a second time, this time with sound. Ask the students to complete Questions 2 and 3. Repeat the process for Scenarios B and C. After the students have analyzed each segment, ask them to discuss Question 4.

Scenario A A new employee has just arrived for the first day at a new job. The supervisor gives them a brief overview of the organization before starting work.

Your role: the new employee You are nervous and excited. Try to remember a time when you were new at a job or at a group such as a student organization. You want to make a good impression, but you are insecure and unsure of yourself. Remember to use body language as well as verbal language to express yourself!

Scenario A A new employee has just arrived for the first day at a new job. The supervisor gives them a brief overview of the organization before starting work.

Your role: the supervisor You have helped hundreds of new employees get a good start, and you believe a ―sink or swim‖ approach is best. Consequently, you should try to reassure the new employee, but you don‘t want to overwhelm them with too much information. Think back to a time when you were responsible for orienting someone new. Remember to use body language as well as verbal language to express yourself!

Scenario B

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Smith and Jones have worked together before and don‘t like each other. They must now work closely on a project that will require months of togetherness. This is the initial planning meeting in which a schedule for the rest of the project must be agreed upon.

Your role: Mr. or Ms. Smith You‘re not sure why Jones doesn‘t seem to like you—you just feel indifferent toward him. Try to remember a time when you had to interact with someone who seemed to dislike you. You are willing to go along with Jones‘s plans, as long as they aren‘t too demanding. Remember to use body language as well as verbal language to express yourself!

Scenario B Smith and Jones have worked together before and don‘t like each other. They must now work closely on a project that will require months of togetherness. This is the initial planning meeting in which a schedule for the rest of the project must be agreed upon.

Your role: Mr. or Ms. Jones You have really disliked Smith ever since he or she criticized a pet project of yours to your mutual boss, and got it rejected. Even worse, you suspect Smith doesn‘t even remember the incident. Now you fear Smith will use this project again to insult you. Try to remember a time when you had to work with someone who you intensely disliked. Remember to use body language as well as verbal language to express yourself!

Scenario C A customer purchased a product that didn‘t perform as advertised. The employee was not at fault but is responsible for satisfying the customer now.

Your role: the customer You‘re angry because you bought an expensive item, and it clearly does not live up to its advertising.

You‘re not sure what you want the company to do, but it had better be good! Try to remember a time when you were angry, and you felt that justice was on your side. Remember to use body language as well as verbal language to express yourself!

Scenario C A customer purchased a product that didn‘t perform as advertised. The employee was not at fault but is responsible for satisfying the customer now.

Your role: the employee You really want to satisfy the customer because your job depends on it. Dealing with angry people is your usual job, and you are good at it. Try to remember a time when someone was angry at you and you managed to effectively deal with their anger. Remember to use body language as well as verbal language to express yourself!

A.

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?

Management 12e by Ricky W. Griffin B.

Next, observe the same video segments with audio included. Describe the interaction again along with any verbal clues that you relied on.

Students should be able to find nonverbal and verbal cues and to accurately describe the interaction both times.

C.

How accurate were your assessments when you had only visual information? Explain why you were or were not accurate in your assessment of the situation.

Typically, students are able to discover the nature of the interaction with nonverbal cues alone.

They may be surprised to find that words add little to their understanding.

D.

What does this exercise show you about the nature of nonverbal factors in interpersonal communication? What advice would you now give managers about the importance of these factors?

This exercise should highlight the importance of nonverbal cues for students. The implication for managers is that they should pay more attention to their nonverbal cues.

Teaching Tip: You can ask the students to share with the class additional examples of the impact of nonverbal cues. Students may recall how a shouting tone of voice gets attention during an emergency or how a professor‘s frown communicates displeasure to students or how a glance from a stranger at a party can be flirtatious.

MANAGEMENT AT WORK Standing Up for Trust The closing case concerns the findings of Amy Cuddy, a social psychologist studying how body language affects your life. Cuddy‘s research showed that two short minutes of modeling ‗power positions‘ made one‘s testosterone increase and their cortisol (stress hormone) decrease. Her research extended to the effect of body language on first impressions and found two critical variables: warmth and competence, account for 90 percent of our evaluations of others.

1.

Case Question 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?

Students answers will vary due to the personal nature of the questions. Improving classroom body language could include examples such as sitting up straight, uncrossing your ankles, leaning back in your seat, opening your arms, and raising your chin (among others). Examples of body language in other situations include, but not limited to, making eye contact, standing up straight, hands on hips or hands used to emphasis important points.

2.

Case Question 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?

Cuddy‘s analysis shows that first impressions contain two critical variables: warmth and competence. Since these two factors account for 90 percent of our evaluations of others and, more importantly, share the way we feel about and act toward them, they are very important factors in the workplace. Holding these two factors aware and looking at the individual barriers to communication, students may offer many answers on how to overcome these barriers. When someone is exhibiting conflicting or inconsistent signals, a warm/competent person could ask for clarification while a cold/incompetent will let it build resentment. A warm/competent supervisor

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may talk to a subordinate in private if the subordinate is losing credibility in the group. A reluctant communicator, when identified by a warm/competent subordinate, superior, or colleague, could be enticed into a greater communication role. A person can hone poor listening skills if alerted to them by a warm/competent coworker. A warm/competent person could sway those with a negative predisposition on a subject. Students answers will vary on the second part of the question asking about their own personal individual barriers to communication.

3.

Case Question 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.

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?

Fathers fall into the warm/competent category because they are usually seen as strong and silent, the ‗bread-winners‘ of the family. Another possible group for warm/competent could be doctors.

Working mothers fall into the warm/incompetent category because they often appear bedraggled and tired. An additional possible example could be grandparents. Asian students fall into the cold/competent category purely due to stereotyping of the ‗smart Asian student‘. The last category of cold/incompetent contains economically disadvantaged individuals who end up in this category through no fault of their own. Another possible example in this category is persons with disabilities.

These are all stereotypes. There are doctors who are neither warm, nor competent; and there are many persons with disabilities contributing to society, with Hawking being the most striking example. Everyone succumbs to these stereotypes at one time or another but students‘ answers will vary greatly on the final question depending on their life experiences.

4.

Case Question 4: 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 discussion 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.‖ Why does this ―gender gap‖ exist in the classroom? Does it help to know that non-white males are often subject to the same disadvantage?

This subtle body language may be a result of decades of ‗oppression‘ or loss of power. Decades of subservience and loss of power lead to these types of body language. So, no, there should be no surprise that non-white males are often subject to the same disadvantage. *You can view the presentation at http://www.ted.com/talks/amy_cuddy_your_body_language_shapes_who_you_are?language=en.

The number-one watched presentation (with more than 34 million views) is Sir Ken Robinson‘s ―How Schools Kill Creativity‖ (2006).

Management 12e by Ricky W. Griffin

CHAPTER 18

Managing Work Groups and Teams CHAPTER SUMMARY Chapter seventeen established the interpersonal nature of organizations. Chapter eighteen extends that discuss by first introducing basic concepts of group and team dynamics. Subsequent sections explain the characteristics of groups and teams in organizations. The text then describes interpersonal and intergroup conflict. Finally, the chapter concludes with a discussion of how conflict can be managed.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Define 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.

2.

Identify and discuss four essential characteristics of groups and teams.

3.

Discuss interpersonal and intergroup conflict in organizations.

4.

Describe how organizations manage conflict.

MANAGEMENT IN ACTION Promoting the Cause of Diversity The opening case talks about research on workplace diversity. Diverse teams may be more effective in two key respects: better financial results and results in innovation. While the data supports this statement, others argue there may only be a correlation, not a clear causal relationship. Smaller-scale studies of teams (as opposed to larger organizations), may reveal a causal relationship that might also be present in larger groups.

LECTURE OUTLINE I.

GROUPS AND TEAMS IN ORGANIZATIONS A group consists of two or more people who interact regularly to accomplish a common purpose or goal.

A.

Types of Groups and Teams Teaching Tip: Stress to your students that most of the work in an organization results from people working together—in groups, teams, or other social units.

1.

A functional group is a permanent group created by the organization to accomplish a number of organizational purposes with an unspecified time horizon.

The functional group (the advertising department at Target) does not disband when they meet their objectives; they replace those objectives with new objectives.

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Extra Example: The local reservations staff of a Continental Airlines ticket office represents a functional group. The organization created the group and it generally meets the other criteria specified in the definition.

2.

Informal or interest group is created by its members for purposes that may or may not be relevant to those of the organization. They also have unspecified time horizons.

Informal groups can be a powerful force for both good and bad.

Extra Example: A group of Continental Airlines employees who bowl or go to movies together on the weekend constitute an informal group.

3.

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.

Extra Example: The flight crew of a specific Continental Airlines flight is a task group.

Its composition changes regularly and it remains intact for only a single flight.

Many organizations today are using a special form of task group called a team. a) 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. b) Other terms for teams include self-managed teams, cross-functional teams, or highperformance teams. c) Virtual teams are comprised of people from remote work sites who work together online. d) If teams are cohesive and have high performance standards, and if they are managed effectively, they can make great contributions to the organization. Poorlymanaged teams may contribute little or detract from organization performance.

Extra Example: Continental uses teams periodically to get specific projects completed.

Teaching Tip: Note the various types of work teams described in Table 18.1.

B.

Why People Join Groups and Teams 1. Interpersonal attraction draws people to form informal or interest groups; they are attracted to the members or the interests of the group.

2. Group activities may appeal to some people get them to join. Bowling or playing bridge.

Extra Example: The passengers on a given flight would not ordinarily be thought of as a group. However, in the event of an emergency, such as terrorist activity onboard a plane, the passengers might work together for their mutual benefit and bond into an interest group. This actually happened on September 11, 2001, on United flight 93, which was hijacked and crashed in Pennsylvania. This is vividly captured in the movie Flight 93.

Extra Example: Groups people join because of their activities include swing-dancing classes, Scrabble clubs, and softball leagues.

3.

Group goals may motivate people to join if they subscribe to the goals. The Sierra Club.

Extra Example: People join a political party if they feel a party‘s goals are important.

4.

5.

Joining a group may satisfy the need for affiliation. The Newcomers Club.

Instrumental benefits that follow from joining a group often motivate an individual to join.

Management 12e by Ricky W. Griffin Extra Example: Childcare workers who join the professional association the National Association for the Education of Young Children (NAEYC) receive free subscriptions to helpful publications, low-cost training, and health and life insurance benefits.

Discussion Starter: Ask students if they are likely to join one or more extra groups or clubs as they approach graduation in order to improve their job market opportunities.

Discussion Starter: Ask students to identify various groups that they belong to. Ask them to discuss why they chose to join various ones.

C.

Stages of Group and Team Development When new groups are formed, they usually evolve through four stages of development.

1.

During the forming stage, the group members get acquainted and begin to test the limits of acceptable behavior.

Teaching Tip: Describe a hypothetical study group formed by some of your students to prepare for a test. Discuss how they spend their initial time—the forming stage—getting acquainted, exchanging telephone numbers, and so forth.

2.

Storming begins with a lack of unity and uneven interaction patterns; there may be some conflict as well.

Teaching Tip: The hypothetical study group may have some initial difficulties in agreeing on a time and place to study, as well as the study process they want to use. Some members of the group may drop out, and new members may join. This would be representative of the storming stage.

3.

During norming, the group members determine their role in the group as well as how the group should interact and begin working toward goal accomplishment.

Teaching Tip: The study group then works out its differences and sets to work. People take the task seriously and start getting ready for the test. This is the norming stage.

4.

Group members enact their roles and group efforts are directed toward goal attainment during the performing stage.

Teaching Tip: In the hypothetical study group, the members finish up and take their test.

If they perform well and feel working together helped their grades, they will likely continue to study together. If they feel that studying together did not help, they will be less likely to do so again. Studying together represents the performing stage.

II.

CHARACTERISTICS OF GROUPS AND TEAMS Groups and teams have several key characteristics: role structures, behavioral norms, cohesiveness, and leadership.

A.

Role Structures Each member in the group has a part—or role—to play. A role consists of the part individuals play in groups in helping the group reach its goals.

A person may take on a task specialist role that concentrates on getting the group‘s task accomplished.

A socioemotional role provides social and emotional support to others on the team.

A few people, usually the leaders, perform both roles; a few others may do neither.

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The group‘s role structure is the set of defined roles and the interrelationships among those roles that the group members define and accept.

Discussion Starter: Ask students to describe different roles they have in various groups.

Role structures emerge as a result of role episodes.

The process begins with the expected role – what other members of the team expect the individual to do.

The expected roles is translated into the sent role – the messages and cues team members use to communicate the expected role to the individual.

The perceived role is what the individual perceives the sent role to mean.

The enacted role is what the individual actually does in the role. The enacted role influences future expectations of the team.

When major disruptions occur, individuals may experience ambiguity, conflict, or overload.

1. Role ambiguity arises when the sent role is unclear and the individual does not know what is expected of him or her.

Role ambiguity can stem from poor job descriptions, vague instructions from a supervisor, or unclear cues from coworkers.

Extra Example: Note that students are likely to experience role ambiguity if their instructor does not provide them with a course outline and/or is vague and ambiguous about class assignments, grading, and so forth.

Teaching Tip: Note that many new employees experience role ambiguity when they first join an organization.

2.

Role conflict occurs when the message and cues composing the sent role are clear but contradictory or mutually exclusive. a) Interrole conflict occurs when a person has two roles that are in conflict with one another. b) Intrarole conflict occurs when a person gets conflicting demands from different sources within the context of the same role. c) Intrasender conflict occurs when a single source sends contradictory messages. d) Person-role conflict occurs when the requirements of the role conflict with the values, attitudes and needs the enactor holds.

Role conflict may lead to stress, poor performance, and rapid turnover.

Group Exercise: Have small groups of students identify personal examples of the various forms of role conflict they have experienced.

3.

Role overload occurs when expectations for the role exceed the individual‘s capabilities to perform.

Managers can work to eliminate role ambiguity by having clear and reasonable expectations and sending clear and straightforward cues.

They can minimize role conflict by having consistent expectations that take into account the employee‘s other roles and personal value system.

Managers can avoid role overload by recognizing the individual‘s capabilities and limits.

Extra Example: Students often experience role overload in college. They take heavy class loads, work, join various on-campus groups, and retain membership in families.

B.

Behavioral Norms

Management 12e by Ricky W. Griffin Norms are standards of behavior that the group accepts and expects of its members. Norms define the boundaries between acceptable and unacceptable behavior.

Teaching Tip: Provide some examples to your students about norms you have witnessed or experienced. For example, in some business schools, faculty members routinely wear professional attire and/or work normal ―business‖ hours. In other business schools, however, faculty dress more casually and/or have more variability in their working hours.

1.

Norms do not always generalize or transfer from one group to the next. What is accepted in one group may be frowned on in another.

Extra Example: Professional athletes sometimes note that when they get traded they are surprised at the differences in work habits, dedication to winning, and similar norms.

2.

Norm variation allows some variation within a group as long as it is not taken to an extreme.

Extra Example: Some professional sports teams make exceptions for their star athletes.

For example, they may skip certain team meetings or functions, start practice a little late, and so forth. The Chicago Bulls routinely did this for Dennis Rodman.

3.

4.

Four sets of factors contribute to norm conformity: team factors, initial stimulus, individual traits, and situational factors.

Group members can either adapt to the norm, or the individual can ignore the norm.

Those who accept and conform are welcomed into the group, whereas those who ignore the norm may be ostracized.

The generalized norm conformity that occurs as a person makes the transition from being an outsider to becoming an insider is called socialization.

Extra Example: When rookie athletes first join a professional sports team, they must often undergo a ritualistic learning process—somewhat like hazing—intended to help them become a true member of the group.

Extra Example: The stronger and clearer the organization‘s culture, the easier it is to socialize newcomers. The culture makes it easier for them to learn about the organization and what is and is not acceptable to it.

C.

Cohesiveness Cohesiveness is the extent to which members are loyal and committed to the group; the degree of mutual attractiveness within the group.

In a highly cohesive team, members work well together, support and trust one another, and are generally effective at achieving their goals. A team that lacks cohesiveness is not very coordinated, its members do not necessarily support one another, and it may have a difficult time achieving its goals.

1.

Five factors can increase cohesiveness in a group or team.

One of the strongest is intergroup competition, when two or more groups are in direct competition.

Personal attraction to the group increases cohesiveness.

Favorable evaluation of the entire group by outsiders increases cohesiveness.

If all group members agree on their goals, cohesiveness is likely to increase.

The more frequently members of the group interact with one another, the more likely the group is to become cohesive.

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Extra Example: Athletic teams often go through a period of heightened cohesiveness after winning a championship or big game.

2.

There are also five factors that reduce team cohesiveness.

Cohesiveness tends to decline as a group increases in size.

When members disagree on the goals of the group, cohesiveness may decrease.

Intragroup competition (competing among themselves) reduces cohesiveness.

Domination by one or more group members may cause overall cohesiveness to decline.

Unpleasant experiences that result from group membership may reduce cohesiveness.

Extra Example: Similarly, athletic teams that lose a big game or that have a disappointing season often become less cohesive as a result.

Extra Example: An organization undergoing a period of layoffs and downsizing may experience a loss of cohesiveness among those employees who retain their jobs.

3.

As teams become more cohesive, members interact more frequently, conform more to norms, and become more satisfied with the team. Cohesiveness may also influence team performance.

Performance is also influenced by the team‘s performance norms.

When both cohesiveness and performance norms are high, high performance should result.

When norms are high and cohesiveness is low, performance will be moderate.

When norms are low, performance will be low regardless of cohesiveness.

The least desirable situation occurs when low performance norms combine with high cohesiveness.

Teaching Tip: A movie called Remember the Titans, starring Denzel Washington, provides a good illustration of the development and consequences of group cohesiveness.

Global Connection: Japanese work groups have traditionally been characterized by both high performance norms and high levels of cohesiveness. This characteristic may help explain why Japanese businesses are so competitive.

D.

Formal and Informal Leadership Most functional groups and teams have an appointed, formal leader and may have an informal leader also.

An informal leader is a person who engages in leadership activities but whose right to do so has not been formally recognized by the organization or group.

The formal and informal leader in any group or team may be the same person, or they may be different people.

An informal leader is likely to be a person capable of effectively carrying out both the task specialist role and the socioemotional roles.

An informal leader may be desirable from the standpoint of the organization if they work in the best interests of the organization.

Extra Example: Before he founded Wal-Mart, Sam Walton was a strong informal leader. Many of his former classmates at the University of Missouri recall that he was frequently looked to for leadership and they knew he would eventually be a big success.

Management 12e by Ricky W. Griffin Extra Example: Another strong informal leader on campus was President Lyndon Baines Johnson, who was a popular and respected student at the University of Texas. LBJ also served as a formal leader when he was elected president of the UT student body.

Discussion Starter: Ask students to identify other examples of informal leaders.

III. INTERPERSONAL AND INTERGROUP CONFLICT Conflict is an inevitable element of interpersonal relationships. This section looks at how conflict affects overall performance. The text explores the causes of conflict between individuals, between groups, and between an organization and its environment.

A. The Nature of Conflict Conflict is a disagreement between two or more individuals or groups.

1.

2.

The disagreement may be superficial or very strong. It can be short-lived or exist for months or even years. It may be work-related or personal.

Most people assume conflict should be avoided but certain kinds of conflict may be beneficial. As long as conflict is handled in a cordial and constructive manner, it is serving a useful purpose in the organization.

If there is no conflict, members may become complacent and apathetic causing performance and innovation to suffer.

A moderate level of conflict can spark motivation, creativity, innovation, initiative, and raise performance.

Too much conflict can produce hostility and lack of cooperation, lowering performance.

Teaching Tip: Ask students to recall any recent instances of conflict that affected them.

Ask them to identify any potentially beneficial aspects of that conflict.

B.

Causes of Conflict Conflict may arise in interpersonal and intergroup relationships but also between an organization and its environment.

1.

Interpersonal conflict—conflict between two or more people—can be caused by personality differences, different beliefs, different perceptions, or excessive competitiveness.

Interesting Quote: ―It were not best that we should all think alike; it is the difference of opinion that makes horse races.‖ (Mark Twain, Pudd‘nhead Wilson, published in 1895) Discussion Starter: At some competitive M.B.A. programs, ambitious students steal important library materials or make all-night prank phone calls in an attempt to lower the grades of other students, improving their own chances. Ask students: ―Can this type of excessive competition and conflict ever be positive? If so, how?‖ In your students‘ opinions, is this type of conflict more likely to occur in colleges of business, where competition is taught as an academic discipline, than in other fields?

2.

3.

Intergroup conflict is conflict between two or more groups, and it can be caused by interdependence, differences in goals, and resource competition.

Conflict between one organization and another in its environment is called interorganizational conflict. A moderate level due to competition is expected. Conflict can also arise between an organization and other elements, such as a consumer group, a

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governmental agency, or a supplier. Conflict may arise between an individual manager and group of workers, may be their own subordinates.

IV. MANAGING CONFLICT IN ORGANIZATIONS 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.

A.

Stimulating Conflict Managers may find it necessary to stimulate a certain degree of conflict if groups are not motivated or if a change is needed. There are three common methods for doing this.

1.

2.

3.

Increase competition between individuals or groups.

Hire outsiders to shake things up and present new perspectives.

Change established procedures, especially if they have outlived their usefulness.

Discussion Starter: Ask students about the wisdom of intentionally stimulating conflict.

Extra Example: Whenever a college or university hires a new president from the outside, he or she usually reassigns some key administrators and often ends up creating at least a small amount of conflict.

Discussion Starter: Discuss the ethics of intentionally stimulating conflict.

B.

Controlling Conflict Sometimes managers want to control conflict to keep it from becoming excessive. There are several methods that are useful in controlling conflict.

1.

2.

3.

4.

Increase the resource base.

Enhance coordination.

Focus group members on superordinate goals.

Match the personalities and work habits of employees.

Discussion Starter: Ask students to think of other methods for controlling conflict.

C.

Resolving and Eliminating Conflict Common methods for resolving and eliminating conflict include the following.

1.

2.

3.

Avoidance may be effective in the short run for some kinds of disagreements.

Convince the conflicting parties to compromise.

Bring the conflicting parties together to confront and negotiate the issues, also called interpersonal problem solving. Many organizations experiment with alternative dispute resolution and use a team of employees to arbitrate conflict.

Global Connection: Conflict among coworkers is less acceptable in Japan than in the U.S. D.

Negotiation 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.

Four primary approaches to negotiation have dominated the research: individual differences, situational characteristics, game theory, and cognitive approaches.

Management 12e by Ricky W. Griffin Those studying individual differences assumed the key to successful negotiation was selecting the right negotiator who had the appropriate demographic characteristics or personality.

Research did produce the expected positive results due to situational variables.

Situational characteristics are the context within which negotiation takes place. Some of this research has contributed to the understanding of the negotiation process but situational characteristics are usually external to the negotiators and beyond their control.

Game theory uses mathematical models to predict the outcome of negotiation situations. This requires every alternative and outcome be analyzed with probabilities and numerical outcomes reflecting the preferences of each outcome. This is a predictive model but it is tedious, if possible at all. Assumes negotiators act rationally at all times which is unrealistic.

The cognitive approach recognizes that negotiators often depart from perfect rationality and tries to predict how and when negotiators will make these departures. The decision analytic approach focuses on providing advice to negotiators actively involved in negotiation.

END OF CHAPTER 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?

A group is two or more people who work together to accomplish a goal. Functional groups are created by the organization to perform a particular function for an indefinite period of time. Task groups are created to work on a specific task for a stated period of time. Informal or interest groups are created by their members for a purpose that may or may not be relevant to their company with an unspecified time horizon. The functional and task group are both created by the organization, while the informal group develops on its own. The task group functions for a short period, and the other two may have indefinite time horizons.

A team is a type of group, and its additional characteristics include the fact that a team is a workrelated group and that the members of a team typically can act with little or no supervision.

2.

What are 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?

The stages of group development are (1) forming—bringing members together and becoming acquainted; (2) storming—developing group identity, structure, and leadership often through conflicts; (3) norming—accepting and codifying role structures and behavioral norms; and (4) performing—moving beyond group formation to begin accomplishing the group‘s purpose. Groups typically move through all the stages in the order given, and groups that try to ―short cut‖ the group development process will often have unresolved issues that will persistently re-surface.

The management of mature teams can focus more on performance than on effective development, which means a focus on tasks rather than on relationships, structures, and culture. For example, while members of a developing group may want or need to spend time getting to know their fellow members through ―ice-breaker‖ activities, members of mature groups may resent being forced to spend time on such activities.

3.

Describe the development of a role within a group. Tell how each role leads to the next.

Roles begin with expectations based on the role that the group members want the individual to adopt. Members communicate their expectations through their actions and words, which make up

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the sent role. The individual recognizes the cues that are being sent to him or her and forms an understanding of the message, which is called the perceived role. When the individual understands expectations, they begin to behave in ways that fulfill that role, creating the enacted role.

4.

Describe the causes of conflict in organizations. What can a manager do to control conflict?

To resolve and eliminate conflict?

Three causes of conflict include (1) interpersonal conflict—between two or more individuals; (2) intergroup conflict—between two or more groups such as functional, product, or regional groups; and (3) conflict between the organization and the environment—competition, lawsuits, consumer relations, and so on.

Coordination can control conflict so a manager can use rules, liaison persons, task forces, and integrating departments. Other effective tools would be expansion of the resource base, a focus on superordinate goals, and the pairing of compatible personnel. To resolve and eliminate conflict, the manager should use confrontation and interpersonal problem solving to work out a mutually agreeable solution if the conflicting parties can use reason and fairness. When the parties are not able to be reasonable and fair, the manager should decide upon a fair compromise and then enforce it. The manager should not use avoidance or smoothing, which tend to cover up evidence of conflict but do not resolve the underlying issues and create more resentment and conflict in the long run.

Questions for Analysis 5.

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?

When members have different reasons for joining a group, conflict over goals, norms, structures, roles, and tasks is likely. The control and resolution tactics suggested in the chapter, including expanding the resource base, improving coordination, compromising, and interpersonal problem solving, can reduce the negative impact of conflict.

6. 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?

Individuals who conform to group norms experience positive outcomes such as acceptance and better personal relationships. Non-conformance may lead to efforts by the other group members to enforce conformance including exclusion from group activities. Therefore, the benefit to individuals of not conforming would primarily be the chance to express their individuality. Organizations with conforming members experience less conflict and more focus on group tasks rather than on issues related to conformity. However, organization with non-conforming members can benefit from the innovative thinking that may result.

7. 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?

Students will argue both sides of this issue. Those who feel teams are just a phase may list other techniques that have come and gone. Students who think teams will be around for a while may argue that workers have wanted a say in the workplace for a long time, and they are ready to accept responsibility for their own work.

Management 12e by Ricky W. Griffin

Questions for Application 8. 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?

Student responses will vary, and not everyone will have been a group member through all of the stages. An example of what a student may say follows: ―The first group I joined at college was Alpha Kappa Psi, a professional business fraternity. I joined because a lot of upper class students I knew were in the fraternity. My best friend, Nancy, introduced me to the group and informed me of the professional and social activities. It seemed as if the members were students with interests much like mine. The pledge class went through the stages discussed in the text. We almost immediately needed to elect class officers. This forced us through the stages quickly as we needed to get to know one another in a week in order to choose leaders from within the group.‖ 9. Describe the behavioral norms that are in effect in your Management class. To what extent are the norms generalized; in other words, how severely are students ―punished‖ for not observing norms? To what extent is there norm variation; that is, are some students able to ―get away‖ with violating norms to which others must conform?

Clearly, students‘ answers will vary, but they may identify norms around issues of class attendance, participation, effort, attire, and behavior towards peers and teachers. At some schools, nonconforming students are few and are dealt with severely; at other institutions, non-conformance is accepted and in some cases, admired. Norm variation may be tolerated based on demographics such as age or gender or based on group membership, such as honor students or athletes.

10. 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?

Clearly, students‘ responses will vary, depending on the situations they describe. They should realize the difference between interpersonal and intergroup conflict and also that conflict may be either harmful or beneficial.

END OF CHAPTER EXERCISES Building Effective Conceptual Skills I.

Purpose This conceptual exercise gives students a chance to think about the factors that lead to team effectiveness.

II.

Format The conceptual skills exercise can be done individually or in groups. It requires about 15–20 minutes to complete.

III. Follow-Up A. 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 it‘s highly effective.

B. Determine the reasons for the team‘s effectiveness. (Hint: You might look for web sites sponsored by the group itself, review online news sources for current articles about it, or enter the group‘s name in a search engine.) Consider team characteristics and activities, such as role structures, norms, cohesiveness, and conflict management.

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Students‘ answer will differ, depending on the team they choose. For example, if they focus on a team that met to produce a class project, reasons for effectiveness might include the cohesiveness the students felt as they faced a common challenge and the interpersonal attraction that team members felt for each other.

C.

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?

Although teams vary in the reasons for their effectiveness, the principles underlying the effective management of teams can be used in any setting.

Building Effective Communication Skills I.

Purpose This in-class demonstration shows the value of communication in fostering teamwork.

II.

Format This exercise should be done by the entire class and will take about 20-30 minutes.

III. Follow-Up The object of this game is to think of as many people as possible who have these letters as the initials of their first and last name. The person must be famous or well-known to the students, must be an actual person (not an animated character or an animal), and can be either living or dead. So for example, the initials MM could stand for Mickey Mantle or Marilyn Monroe or Marilyn Manson but not for Mickey Mouse.

For the first (individual) round of the game, display the following page to the students, covering the second two columns so that only the first column is visible. On the second time, display only the second column. The third time, display only the third.

After the second round, let the students with the highest scores suggest ways to improve the scores.

There are some additional suggestions below, which you can make if the students fail to mention them.

A. B.

C.

Play the ―Name Game‖ that your professor will explain to you. In round 1, work out your answers individually and then report your individual score to the class.

For round 2, you‘ll join a group of 3 to 5 students. Work out your answers together and write your group answers on a single sheet of paper. Now allow each group member to look at the answer sheet. If you can do so without being overheard by other groups, have each member whisper the answers on the sheet to the group. Report your group score to the class.

Your professor will then ask the highest-performing individuals and groups to share their methods with the class. At this point, your professor will make some suggestions. Be sure to consider at least two strategies for improving your score.

Suggestions include: 1.

2.

D. E. F.

thinking of categories of names such as baseball players, presidents, or movie stars choosing a common name that begins with that letter and then finding examples, so that JS would suggest the last name Smith, for example 3. thinking of other similar names once one is discovered, so that if JB suggested James Brown, then trying to remember others named James, for example Now play round 3, working together in the same small group in which you participated in round 2. Report your group scores to the class.

Did average group scores improve upon the average individual scores? Why or why not?

Did average group scores improve after methods for improvement were discussed at the end of round 2? Why or why not?

Management 12e by Ricky W. Griffin Typically, the average group will score higher than the average individual because of the positive impact of sharing ideas and the synergy created by the team. Methods of improvement will typically make only a small improvement in scores, if any.

G.

What does this game teach you about teamwork and effectiveness? Share your thoughts with the class.

If the typical results, as described in answer to Questions 5 and 6, are obtained, then students will realize that teamwork is effective in improving performance when the task relies on information sharing and creativity. In fact, effective teamwork does more to improve scores than does instruction in how to do the task. The implication for managers is that, depending on the nature of the task, teamwork facilitation and training may have a larger positive impact than does task-related training.

MANAGEMENT AT WORK An Open Invitation to Innovation The closing case concerns open innovation, cross-pollination, and functional fixedness. Open innovation is the process of reaching beyond your team, company, or industry for technologies, solutions, ideas, and knowledge available through global solution-provider networks. The rationale is that partnering with outside innovators may lead to something better and accelerate the process if a more advanced solution exists. Cross-pollination is the recombination of previously unrelated ideas in the diffusion of innovation. Two different network models 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 person who often introduces his collaborators to each other. Brokers are more likely to generate new ideas. Functional fixedness occurs when internal problem solvers reach an impasse due to ―cognitive bias‖.

Discussion Starter: Ask students to recall any experiences they may have involving open innovation, cross-pollination, or functional fixedness.

1.

Case Question 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 pictures here (in the text): 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?

Answers will vary in answering the first question. The answer to the puzzle is to remove the tacks from the box, tack the box to the wall, put the candle in the box, and light the candle.

2.

Case Question 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?

Open innovation and multidisciplinary collaboration may increase innovation and make the organization or team more cohesive is innovation is viewed as an intergroup competition. There is likely to be personal attraction since everyone is of similar level of intellect. If innovation results, there will likely be favorable evaluation from outsiders. As long as the ultimate goals are clear and there is productive interaction among members, cohesion should increase. Some disadvantages may arise if the need for outside collaboration is not made clear or is not thought to be necessary by current group members. There could be sabotage occurring if the feelings are strong enough. There also may be problems with having too many people thinking about the same problem, it may become unmanageable in size. There could be disagreement in the ultimate goal of the exercise or group members may end up competing against each other instead of working together. If one or

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two people begin to dominate the group, it may result in some members having unpleasant experiences with the entire process.

3.

Case Question 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)?

Role structure is likely to evolve differently due to the presence of ―outsiders‖ in the process.

Colleagues may be familiar with one another but may initially present an image different than their normal involvement. The sent roles may become complicated if the outsiders do not recognize the messages and cues the team members are trying to communicate to them. If the sent role is unclear, this could raise role ambiguity. If members are sending conflicting messages and cues about the sent role, then role conflict may appear. If different members of the group are sending conflicting sent roles, then intrarole conflict may occur.

4.

Case Question 4: Grattan 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 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?

Students‘ answers will vary widely on these questions.

CHAPTER 19

Basic Elements of Control

Management 12e by Ricky W. Griffin Part Six introduces and discusses the fourth basic managerial function, control.

Part Six consists of two chapters. Chapter nineteen discusses the basics elements of control and the final chapter covers the management of operations, quality, and productivity.

CHAPTER SUMMARY The first section of this chapter explains the purpose of control. The text then looks at types of control and the steps in the control process. The chapter then examines the four levels of control that most organizations employ to remain effective: operations, financial, structural, and strategic control. The chapter concludes by discussing the characteristics of effective control, noting why some people resist control and describing what organizations can do to overcome this resistance.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Explain the purpose of control, identify different types of control, and describe the steps in the control process.

2.

Identify and explain the three forms of operations control.

3.

Describe budgets and other tools for financial control.

4.

Identify and distinguish between two opposing forms of structural control.

5.

Discuss the relationship between strategy and control, including international strategic control.

6.

Identify characteristics of effective control, why people resist control, and how managers can overcome this resistance.

MANAGEMENT IN ACTION Metric Tons and Nonfinancial Metrics The opening case discusses Jones Lang LaSalle (JLL), a Fortune 500 company out of Chicago, specifically their Sustainability Report. The case shows how JLL has made sustainability a key performance indicator even though they have little control over their 200+ office facilities. JLL manages commercial property for clients, making sustainability a full client service. In one year‘s time, JLL saves clients $39 million in energy costs and saving 377 million kilowatt-hours of energy.

Discussion Starter: Do students feel JLL is greenwashing? Is JLL doing all it can to reduce its own energy use? Would it make a difference if they did more?

LECTURE OUTLINE I.

THE NATURE OF CONTROL Control is the regulation of organizational activities in such a way as to facilitate goal attainment.

Teaching Tip: A good analogy to use to describe control is that of a space flight to Mars.

After a rocket is launched, NASA scientists continually monitor its progress toward its target or goal. During the flight, they may have to make periodic corrections to nudge it back on course. Some corrections may be large, others small; some will be in one direction, others in a different direction; and there will be some periods when no

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corrections are needed. This process of monitoring progress toward the goal and then making required corrections is control.

Teaching Tip: To some people, the very idea of control conjures up images of Big Brother and a loss of personal freedom. The manager‘s job is to maintain adequate control without infringing on individual rights.

A.

The Purpose of Control 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.

Teaching Tip: Note Figure 19.1 and its depiction of the four basic purposes of control.

1.

A properly designed control system can help managers anticipate, monitor, and respond to changing circumstances.

Cross-Reference: We described environmental change in detail in Chapter 3.

Extra Example: The common room thermostat is also a control device. When the temperature reaches a certain level, a climate control system is activated. When the temperature changes to the targeted level, the system shuts down.

Discussion Starter: Ask students to discuss whether a control system can completely deal with environmental change, or if—at best—it can only provide partial assistance.

2.

Over time, small mistakes may accumulate and become serious. An adequate control system will help prevent this from happening.

Extra Example: An example of error accumulation would be a manufacturer with a small error in its production system that gets carried through hundreds or thousands of products before it is discovered.

Extra Example: Some time ago, a series of small flaws in Microsoft‘s XP operating system allowed hackers to take control of other people‘s PCs and use them for unethical or illegal activities. The firm had to issue over a dozen small corrections in an attempt to stop the hackers, but the problem was not completely resolved.

3.

As organizations expand and create a variety of products, organizational complexity increases. Control cannot be maintained without a well-planned and well-developed control system.

Teaching Tip: Though control is important to any organization, it is especially important in large, complex organizations. Problems and weaknesses can go undetected and become ever more serious if control systems do not identify them on a timely basis.

Global Connection: To carry the preceding idea further, international firms have even more complex control requirements. This point is covered later in the chapter.

4.

B.

Effective control can help to minimize costs and boost output. Effective control systems can eliminate waste, lower labor costs, and improve output per unit of input.

Types of Control Organizations practice control in a number of different areas and at different levels, and the responsibility for managing control is widespread.

Management 12e by Ricky W. Griffin 1.

Control can focus on any area of the 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, quality control, and equipment control.

Control of human resources includes selection and placement, training and development, performance appraisal, and compensation. Organizations attempt to control behavior toward higher performance and away from unethical behaviors.

Control of information includes sales and marketing forecasting, environmental analysis, public relations, production scheduling and economic forecasting.

Financial control involves managing the organization‘s debt, ensuring the firm has enough cash on hand, and that receivables are collected and bills are paid on time. The control of financial resources is the most important area, because it relates to the control of all the other resources.

Extra Example: Effective control is credited with Wal-Mart‘s success. While its primary competitor, Kmart, was concentrating on marketing and advertising, Wal-Mart managers were focusing on cutting costs, improving efficiency, enhancing operations, and so forth.

2.

Control can also be broken down by level within the organizational system. a) Operations control focuses on the processes the organization uses to transform resources into products or services. Quality control is one type of operations control. b) Financial control is concerned with the organization‘s financial resources. c) Structural control is concerned with how the elements of the organization‘s structure are serving their intended purpose. d) Strategic control focuses on how effectively the organization‘s strategies are succeeding in helping the organization meet its goals.

3.

Responsibility for control resides with all managers. Most large organizations have one or more specialized managerial positions called controllers. A controller is a position in organizations that helps line managers with their control activities. More and more often, control resides with employees as well.

Cross-Reference: As discussed in Chapter 18 and other spots in this book, many organizations today are relying on work teams. To make work teams most effective, the organization must empower them to make decisions and do their own work. In addition, it must allow them to handle much of their own control functions as well.

C.

Steps in the Control Process Regardless of the type or levels of control systems, there are four fundamental steps in any control process.

1. Establishing standards.

A control standard is a target against which subsequent performance is compared.

Standards should be derived from the organization‘s goals, expressed in measurable terms, and focused on important and relevant performance indicators.

Teaching Tip: Note the performance standards that you have set for this class regarding attendance, participation, and exam expectations.

2.

Measuring performance.

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Performance measurement is a constant, ongoing activity for most organizations. For control to be effective, performance must be valid.

Teaching Tip: Note that grades you give papers/tests are a measure of performance.

3.

Compare performance against standards.

Comparing performance against standards will result in one of three outcomes: performance that is higher, lower, or even with the standards. The timetable for comparing performance to standards depends on a variety of factors, including the importance and complexity of what is controlled.

Teaching Tip: Stress that comparing performance against a control standard is not always a cut-and-dried process.

4.

Consider corrective action.

Once the comparison between performance and standards has been made, one of three actions is appropriate: (1) maintain the status quo (do nothing), (2) correct the deviation, or (3) change the standard.

Teaching Tip: As you look over final grades, you may go with a strict 90-80-70-60 percent cutoff for grades (maintaining the status quo). Alternatively, you may apply a curve if grades are too far out of line (changing the standard).

II.

OPERATIONS CONTROL Operations control focuses on the processes used by the organization to transform inputs into finished products or services.

The three forms of operations control are preliminary, screening, and postaction and occur at different points in relation to the transformation process.

A.

Preliminary Control Preliminary control attempts to monitor the quality or quantity of financial, physical, human, and information resources before they actually become part of the system.

Extra Example: Ford Motor Company is increasing its emphasis on preliminary control.

It has raised the product quality standards that must be met by its suppliers, for example, and is pressuring them to lower their costs so that Ford itself can lower its own costs.

B.

Screening Control Screening control relies heavily on feedback processes during the transformation process. As the outputs are produced, they are screened at checkpoints to make sure they meet the standards. Screening controls tend to be used more often than other forms of control.

C.

Postaction Control Postaction control monitors the outputs or results of the organization after the transformation process is complete. Effective if the manufacturing process is only a few simple steps. Useful as an alert to a bigger problem or a sign that a reward is in order.

Most organizations employ a wide variety of techniques to facilitate operations control.

Extra Example: Levi Strauss relies heavily on postaction control. The firm requires that every pair of jeans it makes be inspected before leaving the factory.

Management 12e by Ricky W. Griffin Teaching Tip: Stress the fact that most firms use more than one form of operations control. For example, even though Ford forces its suppliers to improve the quality of parts they ship to the automaker, Ford still pays attention to screening and postaction control.

III. FINANCIAL CONTROL Financial control is concerned with the organization‘s financial resources.

This means control of financial resources as they flow into the organization (revenues, shareholder investments), are held by the organization (working capital, retained earnings), and flow out of the organization (pay, expenses).

Teaching Tip: Interestingly, even though most managers probably consider human resources to be the most critical resource for organizations, financial resources are probably a more important resource to be controlled.

A.

Budgetary Control A budget is a plan expressed in numerical terms.

Budgets serve four primary purposes.

They help managers coordinate resources and projects.

They help define the established standards for control.

They provide guidelines about the organization‘s resources and expectations.

Budgets allow the organization to evaluate manager performance and organizational units.

Discussion Starter: Ask students if they use budgets. If they do, discuss with them how they use budgets, what kinds of budgets they use, how formal they are, and so forth.

1.

Most organizations use three types of budgets—financial, operating, and nonmonetary budgets.

A financial budget indicates where the organization expects to get its cash for the coming time period and how it plans to use it.

An operating budget is concerned with planned operations within the organization.

A nonmonetary budget is a budget expressed in nonfinancial terms, such as units of output, hours of direct labor, machine hours, or square-foot allocations.

Extra Example: Some students use nonmonetary budgets based on time to plan their studying—a certain number of hours on this day to study for one course, a different number of hours on that day for another course, and so forth.

2.

Budges were traditionally developed through a top-down process. Many organizations allow more participation by all managers in the budget development process.

The heads of each operating unit submit budget requests to the heads of their division.

The division head integrates and consolidates the budget requests into one overall division budget request.

Division budget requests are forwarded to the budget committee, usually composed of top managers.

The budget committee, the controller, and the CEO review and agree on the overall budget for the organizations, as well as specific budgets for each operating unit.

Teaching Tip: As noted in the text, many organizations today are allowing more people at lower levels of the organization to participate in the budgeting process. This process is

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consistent with the topics of participation, empowerment, decentralization, and work teams discussed in various other chapters.

3.

4.

Strengths of budgeting: Budgets facilitate effective control.

Budgets facilitate coordination and communication between departments.

Budgets help maintain records of organizational performance and complement planning.

Organizations can use budgets to link plans and control.

Weaknesses of budgeting: Managers may fail to adjust budgets for changing circumstances.

Developing budgets can be very time consuming.

Budgets may limit innovation and change.

Discussion Starter: If your students use budgets for their personal affairs, ask them to discuss positive and negative experiences with budgets. You can then relate these experiences to the strengths and weaknesses of budgets as noted here in the text.

Extra Example: Tenneco and Texas Instruments are firms that have cut back on the budgets they use. However, managers at both firms stress that budgets cannot be eliminated and the budgets they retained play a vital role in their respective organizations.

B.

Other Tools of Financial Control 1. A financial statement is a profile of some aspect of an organization‘s financial circumstances. The two most basic, used by virtually all organizations, are a balance sheet and an income statement.

The balance sheet is a list of assets and liabilities of an organization at a specific point in time.

The income statement is a summary of financial performance over a period of time, usually one year.

Information from the balance sheet and income statement is used in computing important financial ratios.

Teaching Tip: Obtain copies of an income statement and a balance sheet from corporate annual reports. Use them to illustrate their ―look‖ and the basic information they contain.

2.

Ratio analysis is the calculation of one or more financial ratios to assess some aspect of the organization‘s financial health. There are a variety of different ratios.

Liquidity ratios indicate how liquid 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 of the total organization.

Group Exercise: If you obtain financial statements from annual reports, give a copy to small groups of students and have them calculate some of the basic financial ratios listed

Management 12e by Ricky W. Griffin here. Compare and contrast different ratios, especially across different organizations.

Point out that an acceptable ratio in one industry may be high or low in another industry.

3.

An audit is an independent appraisal of an organization‘s accounting, financial, and operational systems.

External audits are financial appraisals conducted by experts who are not employees of the organization. Publicly held companies are required by law to have external audits regularly, as assurance to investors that the financial reports are reliable.

An internal audit is handled by employees of the organization. Its objective is the same as an external audit, to verify the accuracy of financial and accounting procedures.

Teaching Tip: Note that auditing is a specialization within the accounting profession.

Discuss whether your school offers this specialization.

Extra Example: Whether or not they have an internal auditing staff, publicly traded corporations must have their financial statements audited by an external firm. If you obtained corporate annual reports in response to the Teaching Tip provided earlier in this manual, note that the report includes a statement from the firm‘s auditors.

IV. STRUCTURAL CONTROL Two major forms of structural control, bureaucratic control and decentralized control, represent opposite ends of a continuum. A few organizations fall precisely at one extreme or the other, most tend toward one end but may have specific characteristics of either.

A.

Bureaucratic Control Bureaucratic control is an approach to organization design characterized by formal and mechanistic structural arrangements. It follows the bureaucratic model with the goal of employee compliance.

These organizations 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.

Extra Example: General Motors is an example of a firm that relies on bureaucratic control. Myriad rules, regulations, and standard operating procedures dictate what people and operating units can and cannot do.

Extra Example: Most colleges and universities also rely heavily on bureaucratic control.

B.

Decentralized Control Decentralized control is an approach to organizational control based on informal and organic structural arrangements.

Its goal is employee commitment to the organization. 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.

Extra Example: Microsoft uses decentralized control. Members generally support the organization and work well together. Consequently, they need fewer rules and regulations.

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V.

STRATEGIC CONTROL When an organization integrates its strategy and control systems it can assess how effectively that strategy is helping the organization meet its goals.

A. Integrating Strategy and Control Strategic control is aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals.

To ensure strategic control, an organization must focus on how well its structure, leadership, technology, human resources, and information and operational control systems are working to enact the strategic path selected.

Cross-Reference: The basic elements of strategic control parallel the concepts of strategy implementation as discussed in Chapter 7.

B.

International Strategic Control 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 is whether to manage control from a centralized or decentralized perspective. Under a centralized system, each organizational unit around the world is responsible for frequently reporting the results of its performance to headquarters.

Organizations that use a decentralized control system require foreign branches to report less frequently and in less detail.

Global Connection: Some German firms struggle because of inadequate strategic control. They focus so much attention on quality without balancing that quality against cost that their sales are slipping. Their products are known to be of high quality, but they cost so much more than competing products that people have more trouble buying them.

Extra Example: Daimler-Benz, the manufacturer of Mercedes, is an example of a firm experiencing the kinds of troubles noted above. Indeed, these costs were a major factor in the decision to construct an assembly plant in the U.S. and to merge with Chrysler.

VI. MANAGING CONTROL IN ORGANIZATIONS To use the control process, managers must recognize the characteristics of effective control and understand how to identify and overcome occasional resistance to control.

A. Characteristics 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.

1. The more explicit and precise the linkages between planning and control are, the more effective the control system will be. To achieve this, one must account for the control system as the plans are developed.

Teaching Tip: In some ways, planning and control are the two most integrated management functions. Planning helps determine what the organization wants to do, and control keeps it on track toward doing it.

2.

3.

The control system itself must be flexible enough to accommodate changes.

Control systems must be accurate to be effective. Inaccurate information leads to inappropriate managerial action.

Management 12e by Ricky W. Griffin 4.

5.

Timeliness does not necessarily mean quickness. Rather, it describes a control system that provides information as often as is necessary. In general, the more uncertain and unstable the circumstances, the more frequently the measurement is needed.

The information provided by the control system must be as objective as possible.

Extra Example: Waterford Crystal suffered some performance problems because of flaws in its control system. One source of difficulty for the firm was that its accounting system was inadvertently camouflaging higher-than-projected production costs.

Extra Example: Another control problem at Waterford resulted from poorly trained employees subjectively interpreting important information before managers saw it.

B.

Resistance to Control 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.

1.

2.

3.

4.

Overcontrol occurs when an organization attempts to control too many things. This becomes problematic when the control directly affects employee behavior. Troubles arise when employees perceive attempts to limit their behavior as being unreasonable.

The control system may be too narrow, or it may focus too much on quantifiable variables and leave no room for analysis or interpretation.

When departments that end the fiscal year in the red get a budget increase, this is an example of rewarding inefficiency.

The fact that accountability for one‘s work is increased when control systems are in place may promote resistance.

Global Connection: Many managers in India are especially prone to resist control. They view the presence of control measures and systems as indicators that their organization lacks confidence in their managerial abilities.

C.

Overcoming Resistance to Control The best way to overcome resistance to control is to create effective control to begin with. If control systems are properly integrated with planning and if 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.

1.

2.

If employees participate in developing the control systems, there is generally less resistance to them.

Use checks and balances to ensure that the control systems are providing the data needed to compare performance against standards, and use multiple systems to crosscheck the accuracy and usefulness of the control system reports.

Teaching Tip: One of the biggest challenges facing managers is finding the appropriate balance of control. They need to have sufficient control to avoid problems, but they also need to avoid overcontrol.

Teaching Tip: The reliance on work teams and empowered employees needs an increase in self-control if employees are to feel they really have a voice in their own work.

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END OF CHAPTER QUESTIONS Questions for Review 1.

What is the purpose of organizational control? Why is it important?

The purpose of control is to let the organization know how well it is doing by comparing where performance is relative to a standard of where it should be. Control helps the organization fulfill its goals by adapting to change, reducing the compounding of errors, coping with complexity, and minimizing costs.

2.

What are the different levels of control? What are the relationships between the different levels?

At the lowest level, operational and financial controls address issues about transformation processes and use of financial resources. At the mid-level, structural control helps monitor each element of the organization‘s structure. At the highest level, strategic control ensures that the organization effectively meets its strategic goals. Effective strategic control enables effective structural control, which enables effective operational and financial control.

3.

Describe how a budget is created in most organizations. How does a budget help a manager with financial control?

Typically, operating units submit budget requests to divisional managers, who in turn submit requests to a high-level budget committee. The committee, which consists of the CEO, controller, and other high-level finance managers, approves requests and formulates an organization-wide budget. For operational and divisional managers, budgets serve as an indicator of the organization‘s strategic intent. These managers also use budgets to monitor and correct deviations in their use of resources. Top-level managers use budgets to control performance of each division and unit in the firm.

4.

Describe the differences between bureaucratic and decentralized control. What are the advantages and disadvantages of each?

Bureaucratic control works to ensure employee compliance with directives through rules and hierarchy, top-down decision making, and limited participation from lower level employees.

Bureaucratic control is directed at maintaining a minimum level of acceptable performance by individual workers. Decentralized control, on the other hand, is based on informal and organic structural arrangements such as group norms and organizational culture to obtain self-controlled behavior of employees.

Bureaucratic control is quicker and simpler to develop and gives clear-cut guidance to managers, but it can be rigid, it doesn‘t reward excellence, and employees may be frustrated by too many rules and lack of participation. Decentralized control gives opportunities for participation, rewards excellence and creativity, and encourages teamwork. However, decentralized control can be ambiguous, expensive, and take a great deal of time to develop.

Questions for Analysis 5.

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.

Symptoms of poor control may include excessive costs or waste of other resources, too many errors or defects, an inability to adapt in response to changes, and lack of managerial capability in the face of organizational complexity.

Management 12e by Ricky W. Griffin Operational control would help in improving the transformation process such as more training for workers to reduce product defects or a new system for obtaining customer satisfaction feedback.

Financial control is best for control of resources. This would include budgets, financial statements, and audits. Structural control is needed when the various elements of the firm cannot work together effectively. The performance appraisal system, the goal-setting system, and data sharing on the information system are all examples of structural control. Strategic control is required for issues related to long-term goals and includes top leadership capability and growth and profitability targets.

6.

One company uses strict performance standards. Another has standards that are more flexible. What are the advantages and disadvantages of each system?

A strict system is simple to develop and implement, gives clear-cut output, and has an appearance of fairness, yet it can be overly rigid and easily becomes outdated or irrelevant when changes occur. A more flexible system is easily adapted to changing circumstances and can accommodate complex situations more readily. However, a flexible system requires constant updating, may appear to be less fair, and can be confusing and difficult to implement.

7.

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.)

Bureaucratic control suggests strict rules, formal controls, and a rigid hierarchy, which is consistent with the mechanistic form of organizational structure. In tall organizations, bureaucratic control is a top-down process with limited participation by subordinates. Bureaucratic control does not seem to necessitate the technical competence dimension of the bureaucratic form of organization. So, while similar, they are not the same. Decentralized control is more like the organic organization with group norms used for formalization, a flat structure with shared information, and a participative informal environment.

Questions for Application 8. 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.

Clearly, students‘ answers will vary, but they may note lower-level workers can monitor environmental change by seeking customers‘ opinions or speaking to workers in similar jobs at competing firms. Lower-level workers can be critically important in limiting the accumulation of error because many of the errors may originate at the lowest level and lower-level workers may be more aware of the impact of errors on customers. Lower-level employees can help the firm cope with complexity by aiding managers in the development and implementation of sophisticated control systems. Cost minimization is crucial at the lower levels of the firm as employees can work to reduce waste, defects, wasted time, and other items that contribute to high expenses.

9. 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.

The top management team will probably be most involved in issues of strategic control because the team sets the organization‘s long-term goals and then must monitor goal achievement. Middle managers would typically have the highest involvement in structural control as they are responsible for ensuring that all elements of the organization work together effectively. Lower-level employees are probably most active in operational control due to their expertise in the organization‘s transformation processes. All managers have responsibility for financial control at their level in the firm. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. .

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10. Interview a worker to determine which areas and levels of control exist for him or her on the job. Does the worker resist efforts at control? Why or why not?

Students‘ responses will vary, but they should be able to identify the types of control present in a worker‘s job. Some workers do in fact resist control efforts, particularly if the firm employs a bureaucratic control system that allows little employee input. However, students may be surprised to find that many workers prefer a powerful control system because they enjoy knowing exactly what is expected of them, how it will be measured, and the consequences of differing levels of performance.

END OF CHAPTER EXERCISES Building Effective Time Management Skills I.

Purpose This exercise provides students practice in using time-management skills to prioritize tasks related to control.

II.

Format This time-management skills exercise is best performed on an individual basis. It should take 20–30 minutes to complete.

III. Follow-Up A. 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.

Very timely tasks include the disgruntled employee and the big customer with a complaint.

Moderately timely tasks include meeting with your boss, seeing the shop steward, the change in delivery schedule, and the chamber of commerce meeting. Less timely tasks include the upcoming OSHA inspection, and interviewing for a new supervisor.

B.

Are importance and timeliness the same thing?

No. Some tasks need to be done immediately but are not very critical (important), while others are very critical but can be delayed for some time. Timely but not important tasks include a meeting scheduled for today about a routine problem. Important but not timely tasks include setting aside time for long-range strategic planning.

C.

What additional information do you need before you can begin to prioritize all these demands on your time?

It‘s not clear how urgent some of the problems are. For example, is the disgruntled employee acting irrationally, making threats, or carrying a weapon? Any of these would increase that task‘s importance. Is the change in delivery schedule a routine matter, or is it a change that might disrupt the entire firm‘s supply chain? What is the subject of the meeting with your boss?

D.

How would your approach differ if your assistant were in the office?

The assistant could handle some of the routine tasks such as responding to the chamber of commerce‘s request. The assistant also could be used to gather additional information such as asking your boss about the subject of the meeting.

Building Effective Technical Skills I.

Purpose This exercise improves students‘ technical skills by asking them to prepare a personal budget and then analyze its effectiveness.

II.

Format

Management 12e by Ricky W. Griffin This exercise should be done by individual students outside of class and will take at least 30 minutes to complete, although motivated students may spend more time.

III. Follow-Up A. Prepare lists of your estimated expenditures and income for one month. Remember: You‘re dealing with budgeted amounts, not the amounts that you actually spend and take in. You‘re also dealing with figures that represent a typical month or a reasonable minimum. If, for example, you estimate that you spend $200 a month on groceries, you need to ask yourself whether that‘s a reasonable amount to spend on groceries for a month. If it‘s not, perhaps a more typical or reasonable figure is, say, $125.

First, estimate your necessary monthly expenses for tuition, rent, car payments, childcare, food, utilities, and so on. Then, estimate your income from all sources, such as wages, allowance, loans, and funds borrowed on credit cards. Calculate both totals.

B.

Now write down all of your actual expenses and all your actual income over the last month. If you don‘t have exact figures, estimate as closely as you can. Calculate both totals.

C.

Compare your estimates to your actual expenses and actual income. Are there any discrepancies? If so, what caused them?

In completing this exercise, students become familiar with the steps in the budget process, from estimation of future expenses to measurement of actual expenses to comparison of the two.

Most students will experience discrepancies and the reasons may include unexpected events or poor initial estimates.

D.

Did you expect to have a surplus or a deficit for the month? Did you actually have a surplus or a deficit? What can you do to make up any deficit or manage any surplus?

Most often, an unexpected surplus or deficit occurs, although hopefully, the discrepancy is relatively minor. For small deviations, no or little action may be necessary. Large surpluses may be saved or ―blown.‖ Point out to students that large deficits are the most problematic.

Their suggestions may either increase revenues, such as asking parents for more allowance or taking out a loan, or they may reduce expenses, such as finding a roommate or dropping out of school.

E.

Do you regularly use a personal budget? If yes, how is it helpful? If no, how might it be helpful?

Most people use a budget of some sort, but they vary considerably in terms of their detail and specificity. Some people, for example, write detailed budgets that indicate how much they can spend each week on groceries, transportation, and so forth. Others have a more general idea of how much money they need for various expenses, but they do not commit it to writing.

Students‘ opinion about the usefulness of budgets will vary, of course. Clearly, budgets are most useful when they are accurate and when they are used consistently.

MANAGEMENT AT WORK The Law of Cheating The closing case discusses performance measures or key performance indicators (KPI) and the problems that arise when high-stakes incentives are tied to narrow win-or-lose KPIs. The title of the case refers to Campbell‘s Law which concludes that if the stakes and the cost of failure are too high, people tend to cheat. One expert distinguishes between ―honest cheating‖ and ―dishonest cheating‖. Clarifying ―dishonest cheating is illegal and you can go to jail for it‖.

1.

Case Question 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

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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.

Students answers will vary of course. There should be some arguments of how the control measures of students‘ test scores do not have characterisces of effective control measures. Students could mention how the measure is inflexible, or based on inaccurate information or does not show a linkage between students‘ test scores and teacher‘s abilities. The other side of the case is to try to honestly meet the standards by either ‗teaching to test‘ or asserting themselves into the process of attempting to change the standards.

2.

Case Question 2: Think about a class that you‘re taking now or have taken in the past. What key performance indicator (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 is was too narrowly focused or otherwise unreasonable? If so, how do you think your instructor could have improved his performance-evaluation strategy?

Answers will vary greatly for this question. A student may offer an example of an introductory writing class where the KPIs were grades on a series of small written assignments and the final paper. The writing assignments were on a gradually weighted scale with the final paper responsible for 70 percent of your grade. This could show an instructor strategy of students continually improving throughout the class with the final paper being their best effort.

3.

Case Question 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?

Due to the personal, reflective nature of these questions, students‘ responses will vary.

4.

Case Question 4: As we saw in Chapter 13, 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 and 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 tension as you make decisions affecting your behavior?

Again, the personal nature of the questions will vary the answers. *Jeffrey M. Kaplan, ―The First Word on Compliance Incentives,‖ The FCPA Blog (January 19, 2011), www.fcpablog.com, on June 29, 2015.

CHAPTER 20

Managing Operations, Quality, and Productivity CHAPTER SUMMARY Chapter 20 first introduces operations management and discusses its role in general management and organizational strategy. The next three sections discuss the design of operations systems, organization technologies, and implementing operations systems. The text then introduces and discusses various

Management 12e by Ricky W. Griffin issues in managing for quality and total quality. Finally, the chapter closes with a discussion on productivity, which is closely related to quality.

LEARNING OBJECTIVES After covering this chapter, students should be able to: 1.

Describe and explain the nature of operations management.

2.

Identify and discuss the components involved in designing effective operations systems.

3.

Discuss organizational technologies and their role in operations management.

4.

Identify and discuss the components involved in implementing operations systems through supply chain management.

5.

Explain the meaning and importance of managing quality and total quality management.

6.

Explain 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 The opening case discusses employee engagement and the positive results of having engaged employees.

Gallup found the work units with engaged employees outperformed other units in customer ratings, profitability, and productivity. Gallup also estimated that actively disengaged employees, about 26 percent of all workers, cost U.S. organizations between $450-$550 billion in lost productivity.

Discussion Starter: Do students feel engaged in their current jobs? Can students identify coworkers who are actively engaged and others who are actively disengaged? Do students expect to be more or less engaged in future jobs?

LECTURE OUTLINE I.

THE NATURE OF OPERATIONS MANAGEMENT Operations management is the total set of managerial activities used by an organization to transform resource inputs into products, services, or both.

A.

The Importance of Operations Operations management provides utility to the organization. In a manufacturing environment, operations management provides form utility by combining many dissimilar inputs to create an output. In a service organization, operations management provides time and place utility.

B.

Manufacturing and Production Operations Manufacturing is a form of business that combines and transforms resource inputs into tangible outcomes.

U.S. manufacturing began declining in the 1970‘s due to global competition. The U.S. is making a comeback in some industries.

Extra Example: Other examples of large manufacturing firms include Merck (healthcare), Cummins Engine Company (diesel engines), Herman Miller (office furniture), and Procter & Gamble (Cover Girl makeup, Crest toothpaste, Folgers coffee, Gillette, and more).

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C.

Service Operations A service organization is one that transforms resources into intangible output and creates time or place utility for its customers.

The service industry began increasing as manufacturing was decreasing. In 1947, the service sector was responsible for less than half of the U.S. GNP. By 1975, that figure reached 65 percent, and by 2009, it was over 80 percent.

Extra Example: Other large service organizations include American Airlines (transportation), Citigroup (financial services), Accenture (management consulting), Marriott (lodging), and Regis Corporation (SuperCuts and other salon chains).

Teaching Tip: Point out to students that whether a company is a manufacturing or service firm is sometimes not very clear cut. For example, is Red Lobster selling food (a product) or service? What about a hair salon that cuts hair and then sells the customer a bottle of shampoo? Clearly, the concepts of ―manufacturing‖ and ―service‖ are not two mutually-exclusive categories, but they exist on the two extreme ends of a scale, and many organizations fall somewhere between the two extremes.

Teaching Tip: Note that many organizations today are beginning to operate in both manufacturing and service businesses. General Electric, for example, makes jet engines, operates a television network, and owns a financial services business.

Discussion Starter: Is it possible for an economic system such as that of the United States to move totally away from manufacturing and become purely a service economy?

D.

The Role of Operations in Organizational Strategy Operations management is very important to organizations. It directly impacts competitiveness, quality, and productivity.

Operations management also directly influences the organizations overall level of effectiveness.

Strategy affects operations management and operations management affects strategy.

Group Exercise: Have small groups of students relate different approaches to operations to the different types of strategies discussed in Chapter 7.

II.

DESIGNING OPERATIONS SYSTEMS The goal of operations managers includes both efficiency and effectiveness. The most basic issues and decisions include the product-service mix, capacity, and facilities.

A. Determining Product-Service Mix The product-service mix determines how many and what kinds of products and services (or both) to offer.

Decisions about product-service mix are based on the firm‘s corporate, business, and marketing strategies.

B.

Capacity Decisions Capacity decisions involve choosing the amount of products, services, or both that can be produced by an organization.

Management 12e by Ricky W. Griffin This will involve determining for the organization the conversion capacity that is appropriate for the demand. This decision is critical because if overestimated, the resources required to build the facility may never be recouped, and if underestimated market opportunities may be lost.

Extra Example: Some firms can manipulate their capacity by extending or compressing their operating hours. For example, when Disney‘s popular Animal Kingdom theme park opened in mid-1998, the company started opening the park at 7:00 a.m. and staying open until late in the evening. This helped spread the huge crowds out over a longer period of each day, essentially increasing the park‘s capacity.

Extra Example: Similarly, in some college towns some merchants close early during the summer because of reduced customer traffic.

C.

Facilities Decisions Facilities are the physical locations where products or services are created, stored, and distributed. Major decisions pertain to facility location and layout.

1.

2.

Location is the organization‘s physical positioning or geographic site. Location is determined by what amenities (railroads, airports, etc.) or customers (mall shoppers, downtown shoppers) it must be near.

Layout is the physical configuration of the facilities, the arrangement of equipment within facilities, or both. a) A product layout is a physical configuration arranged around the product and is appropriate when large quantities of a single product are needed. b) A process layout is arranged around the process and is used when a variety of products are created using a similar process. c) A fixed-position layout is arranged around a single work area and should be used when the organization is creating a few very large and complex products. d) A cellular layout is used when families of products can follow similar flow paths.

Group Exercise: Have students work together and identify different examples to illustrate each of the three layouts noted in the text.

Teaching Tip: Note the interrelationship between layout and technology, discussed next.

III. ORGANIZATIONAL TECHNOLOGIES Technology is the set of processes and systems used by organizations to convert resources into products or services.

Cross-Reference: Note that we also discussed technology in Chapter 11.

A.

Manufacturing Technology 1. Automation is the process of designing work so that it can be completely or almost completely performed by machines. Feedback is a critical component of automation.

In the long run, automation creates more jobs than it eliminates. However, the new jobs require workers with good technology skills, and so automation may permanently displace some low-skilled workers.

Discussion Starter: Ask students to discuss the pros and cons of automation. Can any production process ever be truly automated?

Extra Example: Automatic teller machines (ATMs) are a form of automation.

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2.

Computer-assisted manufacturing is a technology that relies on computers to design or manufacture products. a) Computer-aided design (CAD) involves using computers to design parts and complete products and to simulate performance so that prototypes need not be constructed. b) Computer-aided manufacturing (CAM) is the use of computers to plan and control manufacturing processes. c) Computer-integrated manufacturing (CIM) allows for coordination among all manufacturing activities. d) Computer-controlled movement of materials from one part of the system to another is usually included in flexible manufacturing systems (FMS).

Extra Example: Most computers today are designed with computer-aided design techniques and then manufactured with computer-aided manufacturing techniques.

3.

A robot is any artificial device that is able to perform functions ordinarily thought to be appropriate for human beings. Robots are common on many factory floors.

Discussion Starter: Note that robots were envisioned to look like human beings. In reality, however, most industrial robots today bear little resemblance to humans.

Discussion Starter: Robots have played a big role in many science fiction movies such as Star Wars, AI, and others. Ask students to identify other movies featuring robots.

Discuss the realism (or lack of same) in these movies.

B.

Service Technology Examples of automation in the service industry include automatic teller machines used by banks, patient information systems used by hospitals to track patients, and computerized reservation systems used by hotels.

Discussion Starter: Solicit suggestions for other illustrations of service technology.

IV. IMPLEMENTING OPERATIONS SYSTEMS THROUGH SUPPLY CHAIN MANAGEMENT Supply chain management is the process of managing operations control, resource acquisition and inventory so as to improve overall efficiency and effectiveness.

A.

Operations Management as Control Operations management as control can be obtained by coordinating it with other functions.

Depending on the strategic role of operations, operations managers are accountable for different kinds of results.

In an organization using bureaucratic control, accountability is defined in rules and regulations. In a decentralized system, it is likely understood and accepted by everyone.

Teaching Tip: Stress the fundamental role of operations management as control in organizations. Operations management is often called upon to coordinate the activities of other units, so control is a very important consideration.

B.

Purchasing Management Purchasing management is concerned with buying the materials and resources needed to produce products and services. Also called procurement. Purchasing is at the very heart of effective supply chain management. The manager must pay attention to quality, reliability of the supplier, and get the best price negotiated.

Management 12e by Ricky W. Griffin Teaching Tip: Some business programs offer specialized courses in purchasing management. Indicate whether your school offers such a course.

C.

Inventory Management Inventory control manages raw materials, work-in-progress, finished-goods, and products in transit. Also called materials control.

The just-in-time (JIT) method is an inventory system that has necessary materials arriving as soon as they are needed (just in time) so that the production process is not interrupted.

The JIT system reduces the organization‘s investment in storage space for raw materials and in the materials themselves. This requires high levels of coordination and cooperation between the company and its suppliers.

Group Exercise: Have student groups identify five different kinds of organizations, and then identify potential examples of each type of inventory.

Extra Example: Sometimes managers use the concept of inventory in creative ways. For example, the EEOC currently has a backlog of several thousand discrimination cases it simply does not have the staff to handle. But the agency refuses to use the term ―backlog,‖ instead calling the cases ―inventory.‖ Discussion Starter: Students may have an especially keen understanding of the concept of ―just-in-time‖ if they are procrastinators or if their work loads do not permit working ahead of schedule. Ask them to comment on the benefits and potential pitfalls of a justin-time system based on their experiences.

V.

MANAGING TOTAL QUALITY A.

The Meaning of Quality Quality is the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs.

1.

2.

3.

B.

The eight dimensions of quality include: performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality.

Quality is relative. A high-priced luxury car is of high quality. However a mid-priced car may be seen as high-quality relative to its price.

Quality is relevant for both goods and services and is judged relative to other goods or services.

The Importance of Quality The Malcolm Baldrige Award, named after a former secretary of commerce, this prestigious award is given to firms that achieve major quality improvements.

Group Exercise: Have students research the most recent firms to win a Baldrige Award.

Discussion Starter: Ask students if they have any experiences with Baldrige Awardwinning firms, and if they agree with the merits of the award for that particular firm.

1.

2.

Quality has become one of the most competitive points in business today.

Productivity and quality are related but not as much as they were in the past. It is not true that if you increase output, quality will decrease. It is possible for both to go up.

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3.

Improved quality can also lower costs with fewer returns, less maintenance, and fewer customer complaints.

Discussion Starter: There is a potential dark side to quality. It is possible for a firm to focus so much on quality that it loses sight of other aspects of effective management.

C.

Total Quality Management Total quality management, or TQM, is a strategic commitment by top management to change its whole approach to business to make quality a guiding factor in everything the organization does. Sometimes called quality assurance.

1.

2.

3.

4.

5.

The starting point for TQM is a strategic commitment from top management. This commitment is important for two reasons, the culture must change to make quality a goal and costs will increase. For success, both require top management commitment.

Almost all successful quality enhancement programs involve making the person responsible for doing the job also responsible for making sure that it is done right.

Another important part of TQM is improving the quality of the materials the organization uses. Many firms increase the quality requirements they impose on suppliers as a way of improving quality of their own products.

New forms of technology such as robotics and automation can help improve quality.

Improving the operating systems, or methods, used by the organization during the actual transformation process is another approach to improving quality.

Extra Example: Note that improving materials is not always a straightforward decision.

In the early days of notebook computers, manufacturers used metal cases. Now, models use lighter-weight plastic and are much lighter than the earlier models, but not as sturdy.

D.

TQM Tools and Techniques 1. Value-added analysis is the comprehensive evaluation of all work activities, material flows, and paperwork to determine the value that they add for customers. This analysis often reveals wasteful or unnecessary activities that can be eliminated.

2. Benchmarking is the process of learning how other firms do things in an exceptionally high quality manner. This may be simple and direct such as examining the competing product, or indirect such as looking at how a competitor completes routine processes such as hiring or shipping.

Teaching Tip: One recent study found that 31 percent of U.S. firms benchmark regularly, while only 7 percent never benchmark at all.

Extra Example: IBM conducts around one hundred benchmarking studies a year. AT&T conducts around forty to fifty studies a year.

3.

Some firms boost quality by outsourcing—subcontracting services and operations to other firms that can perform them cheaper and/or better. If a company identifies an area of operations it does inefficiently, outsourcing may not only book efficiency, but quality.

Extra Example: Many colleges and universities outsource. Popular areas for outsourcing include food services, equipment and supplies, housing and health services.

4.

5.

Cycle time refers to the time needed by the organization to accomplish activities such as developing, making, and distributing products or services. Reducing cycle time is another popular TQM technique because it often improves quality in the process.

ISO 9000:2000 is a set of quality standards created by the International Organization for Standardization as revised in 2000. These standards cover such areas as product testing,

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6.

employee training, supplier relations, and more. Firms must apply for certification and are then audited. Some firms find just preparing for the audit improves quality.

ISO 14000 is a set of standards for environmental performance. It requires firms to document their acquisition of raw materials, pollution, energy usage, and so on.

Teaching Tip: The correct pronunciation of ISO 9000 is not ―I-S-O 9000,‖ but instead is ―ICE´ oh 9000,‖ with the stress on "ICE." 7.

8.

Statistical quality control (SQC) is a set of specific statistical techniques that can be used to monitor quality; includes acceptance sampling and in-process sampling.

Acceptance sampling involves sampling finished goods for quality standards.

In-process sampling involves evaluating products during production so needed changes can be made.

Six Sigma was developed in the 1980s for Motorola but can be used for manufacturing or service organizations. The method tries to eliminate mistakes. Sigma refers to a standard deviation, so the Six Sigma defect rate is six standard deviations above the mean rate.

VI. MANAGING PRODUCTIVITY A.

The Meaning of Productivity Productivity is an economic measure of efficiency that summarizes what is produced relative to the resources used to produce it.

Productivity is often assessed at different levels of analysis and in different forms.

1.

2.

The level of productivity refers to the units of analysis used to calculate or define productivity.

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 is the level of productivity achieved by an individual company.

Unit and individual productivity refers to the productivity achieved by a unit or department within an organization and the level of productivity attained by a single person.

There are many different forms of productivity. a) Total factor productivity defines productivity as outputs divided by inputs. This is an overall indicator of how well an organization uses all of its resources to create all of its products and services. b) Firms also calculate partial productivity ratios that use only one category of resource instead of all of them. For example labor productivity may be defined as outputs divided by direct labor costs.

B.

The Importance of Productivity Two reasons why productivity is important are that it determines (1) the organization‘s level of profitability and, ultimately, of its ability to survive and (2) people‘s standard of living.

C.

Productivity Trends One trend in productivity is that the United States remains one of the most productive countries in the world. Though other countries gained ground during the 1980s, productivity growth in the United States picked up steam in the 1990s, and is generally keeping pace with growth in most other industrialized countries.

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Global Connection: While most experts have focused concern on productivity growth rates in Japan and Germany, productivity in Canada and France have actually crept the closest to that of the United States.

D.

Improving Productivity Numerous specific suggestions for improving productivity falls into two broad categories: improving operations and increasing employee involvement.

1. One way to improve operations is to spend more on research and development for new products, new uses for existing products, and new methods for making products. Another way to boost productivity is to revamp transformation facilities.

2. Increasing employee involvement can improve productivity. Examples include workers being given a bigger voice in how they do their job, cross-training, and rewards.

However, it is important that rewards are provided for employee involvement to make participation really work.

Cross-Reference: Note that increasing employee involvement is discussed in numerous other locations in the book, including Chapters 2, 11, 15, and 18.

END OF CHAPTER 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?

Operations management should be fully integrated with the strategy of the organization. It is not possible to separate operations from the overall business goals and directions. If a firm desires to become a cost leader in the industry, operations management will be needed to develop and maintain a technological system and method of production that will provide cost leadership.

Productivity and quality likewise need to be integrated into the strategic plan. Efficiency and effectiveness in the production process lead to the strategic advantage most businesses need to be successful.

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?

Determining product-service mix involves choosing which products and services the firm will offer.

To make product-service mix decisions, the firm must consider its ability to supply the products and services, the market‘s demand for them, and data about expenses and revenues. Capacity decisions determine the quantity of products and services offered, and rely on information about capability, demand, and profitability. Facilities decisions select the location and layout of the firm‘s physical facilities. Location is determined by investigating the firm‘s needs as well as cost information, while layout decisions are made based on the production processes that will be occurring in the facility.

3.

What are some approaches to facilities layout? How do they differ from one another? How are they similar?

One common layout is the product layout, which is best for processes that produce large quantities of a single product. It resembles the classic ―assembly line‖ formation with sequential performance of work at fixed stations while work-in-process flows past each station.

The process layout is best when a facility produces multiple products that rely on the performance of the same processes but in different sequences. For example, a doctor‘s clinic may have a check-in desk, a screening area, examination rooms, a laboratory, a pharmacy, an X-ray room, a check-out

Management 12e by Ricky W. Griffin desk, and so on. Some patients will use all of these areas; others just a few, and the order of the processes will also differ to some extent.

The fixed-position layout has a stationary product and each process is brought to the product‘s location. This layout is used, for example, in the manufacture of large ships or airplanes where welders, electricians, painters, and others work in sequence on a single, large product.

The cellular layout is best for groups of related products that follow similar paths through the various processes. An auto factory may use a cellular layout, for example, to build all of the brake subassemblies for each model of car in one area and another area may be used for producing dashboards. The brakes and dashboards are then delivered to other areas where each model of vehicle is assembled.

4.

What is Total Quality Management? What are the major characteristics of TQM? Total Quality Management is an organization-wide commitment to making quality a top priority for the firm. Typically, TQM implementations include employee involvement at all levels, new technology, and improvements in materials and methods. TQM tools are benchmarking against excellent firms, outsourcing where appropriate, increased speed in every process, implementation of ISO 9000 or other objective quality standards, and the use of statistical quality control techniques.

Questions for Analysis 5.

Is operations management linked most closely to corporate-level, business-level, or functional strategies? Why or in what way?

Operations management is related to all of these, but it is most closely linked to functional strategies, particularly those associated with the production function. The primary function of the production process is transformation. To some extent the production function in a manufacturing organization is identical to operations management, yet there are ties to corporate image in terms of quality and to business-level strategies for cost, product, and durability.

6. ―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.

It is clear that some workers, particularly those with low-tech skills, are being replaced by automated equipment. However, increasing use of automation creates demand for workers who can manufacture, install, use, and repair the automation equipment. Those jobs tend to require more skills and to have higher pay. In the short run, however, some displacement of workers will occur.

7. 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.

This question asks students to consider their own personal definition of quality, which can involve a number of different elements. Answers will vary. Students should be able to describe the relationships between a definition of quality and managerial action. For example, if a firm desires error-free quality, actions will focus on measuring and improving the firm‘s defect rate. If customer satisfaction is the quality standard, then actions will focus on measuring and improving satisfaction ratings.

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Questions for Application 8. How can a service organization use techniques from operations management? Give specific examples from your college or university (a provider of educational services).

Clearly, answers will vary. Here‘s one example: ―At my university, a new classroom building was recently built. University administrators chose the building site, decided upon an optimal size, and then designed the layout of the building to include classrooms of different sizes as well as meeting rooms, a lounge area, and a student computer lab.‖ 9. 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?

Students‘ answers will vary, but they should identify attributes such as reliability, ease of operation, performance to expectations, and desirable features. Students should recognize that individuals‘ perceptions of quality may differ. For example, one person may prefer a car stereo that allows the user to select many different options and settings, while another prefers one that is simple and therefore is safer to operate while driving.

10. What advice would you give to the manager of a small local service business, such as a pizza parlor or dry cleaner, about improvements in quality and productivity? Would your advice differ if the small business were a manufacturing company—for example, a T-shirt-printing firm? Describe any differences you would expect to see.

This question addresses the differences in implementation of quality improvements in service companies as compared to manufacturing companies. Students should recognize that, while the specific suggestions will differ, the principles of quality improvement, such as elimination of defects and meeting customer needs, remain the same.

END OF CHAPTER EXERCISES Building Effective Communication Skills I.

Purpose This exercise gives students practice in composing business letters related to issues of quality and customer satisfaction.

II.

Format This exercise may be done in class or outside of class by individual students or small groups and will take about 30 minutes to complete.

III. Follow-Up A. Write an answer to the above letter which assumes that you now have the parts available.

The students should prepare a letter that apologizes for the mistake and offers a solution that is acceptable to the customer. This may either be an exact fulfillment of the original demand, or it may be an innovative but equally acceptable alternative solution.

B.

How would your answer differ if ABC Autos were not a valued customer?

Students may be tempted to give a less valued customer less attention and support. To some extent, this is a reality of real businesses, for example when First Class air travelers wait in a shorter line than do Economy travelers. However, you can point out to students the hazards of this approach because many small customers may in fact have more power than do a few large customers, and alienating one may lead to alienating the rest.

Management 12e by Ricky W. Griffin C.

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?

The letter should probably not differ much or at all from the response the students prepared to Question 1. You can discuss with the class the reasons why it would not be prudent to admit that the shipment was stolen—lawsuits from the accused, shock and loss of trust from customers, and so on.

D.

How would your answer differ if you found out that the owner of ABC Autos made a mistake and the order had been filled?

This is a difficult task because students have to decide whether it‘s worth the risk of losing a customer to point out that the mistake was on their part. And if the students choose the riskier approach, they must then handle the delicate job of tactfully pointing out a mistake. Many students will decide not to change their letter at all.

E.

Now review your answers to the previous questions. What are the important components of an effective response to a customer‘s quality complaint (setting the tone, expressing an apology, suggesting a solution, and so on)? How did you use these components in your various responses?

The purpose of this question is to help students realize that, despite the circumstances of a customer‘s complaint, the responsibility for apologizing and satisfying the unhappy customer remains the same.

Building Effective Diagnostic Skills I.

Purpose Students will use this exercise to learn about the relationship between quality, price, and expectations for both services and products.

II.

Format The diagnostic skills exercise is best completed by students working individually. It should take about 15–20 minutes.

III. Follow-Up A. Assess the extent to which the quality that you associated with each was a function of price and your expectations.

Answers will vary, but most students will agree that high-priced products and services generate an expectation of high quality. Also, expectations may be raised by factors other than price, such as positive word-of-mouth or alluring advertising. When expectations are high, perceived quality must also be high to generate satisfaction. When expectations are low, perceived quality may also be low without creating dissatisfaction.

B.

Could the quality of each product or service be improved without greatly affecting its price?

If so, how?

Students will develop a variety of ideas in answer to this question. For example, Wal-Mart cashiers are trained to read a customer‘s name from their check or credit card and to say, ―Thank you, Mrs. Smith‖ at the end of a transaction. This doesn‘t add appreciably to the cost, but many customers appreciate the personalized service.

C.

Can high-quality service offset adequate or even poor product quality? Can outstanding product quality offset only adequate or even poor customer service?

Most students should see that of the two, product quality is the more important for most consumers and most purchases. This may be due to the time element. The service part of the purchase is transitory; poor service will end soon and can be forgotten. On the other hand, the product part of the purchase is more durable, and unsatisfactory products will still be causing dissatisfaction years later. For example, a customer may persist in attempts to buy a high-

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quality camera, even though the retail clerk is unhelpful or rude, because he or she anticipates many years of satisfied use of the camera, long after the rude clerk is forgotten.

MANAGEMENT AT WORK Driving Hard Bargains in Sustainability The closing case concerns the issues surrounding supply chain management or SCM for those companies who have committed themselves to sustainability. Sustainability issues are strategic matters because they will shape the future of the business. Both sustainability and supply chain strategy should be formulated with a firmer sense of business continuity or how a business will continue to function during and after a disaster. Business continuity management (BCM) 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. Proponents of proactive SCM recommend that organizations build stronger measures and more practical activities into their SCM practices.

1.

Case Question 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 business continuity management.

Students‘ examples will vary. One example could be a tanning salon who purchases a tanning lotion that causes customers to burn while in the tanning beds. This could potentially come to bear on the company‘s business continuity if they do not correct the problem to the customers‘ satisfaction. The company depends on customers coming in for tanning sessions. If customers stop coming, the business will have to close or change direction. If the business was using business continuity management, they may have a plan for what to do if their products have an adverse effect on customers. This should smooth the customer reassurance process and may help the business survive.

2.

Case Question 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 SmithKline Glaxo Kellogg‘s GE Johnson & Johnson Nike L‘Oreal Walmart Men‘s Wearhouse

If there is a natural disaster in coffee producing countries, this could affect the quality of Starbucks coffee if they have to use a lesser grade. Their brand name could be tarnished if the cups they purchase are prone to leaks. Starbucks‘ ‗free wi-fi‘ would be useless if their internet supplier is unreliable. There are a myriad of examples for each business.

3.

Case Question 3: Consider the following statement by Jonathan Maxwell, CEO of Sustainable Development Capital Ltd.: ―If it‘s not commercial, it‘s not sustainable.‖

Management 12e by Ricky W. Griffin 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?

Maxwell may mean that even if you make a product made with completely sustainable components, it will not matter if the product does not sell. There must be a balance between good practices and good products. There must customer demand in order for the business to profit and continue.

4.

Case Question 4: The most recent U.N. 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 dropoff in concern for sustainability challenges?

These numbers could be attributed to CEOs taking a world-view when saying that business was not doing enough to address sustainability but then saying their company was handling these challenges.

Some CEOs may feel as if they have already ‗done‘ sustainability, so the numbers have dropped due to CEOs feeling this issue is not as important now. They may not realize that sustainability is an ongoing process that requires continual upkeep.

*Ariel Schwartz, ―CEOs No Longer Think Sustainability Is Key to Business Success,‖ Fast Company (September 20, 2013), www.fastcoexist.com, on July 12, 2015.

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