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Motivating Employees - Principles of Management - Chapter 14

Created by - Jenny Clarke

Motivating Employees - Principles of Management - Chapter 14

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Understand need-based theories of motivation.Understand process-based theories of motivation.Describe how fairness perceptions are determined and their consequences.Learn to use performance appraisals in a motivational way.Learn to apply organizational rewards in a motivational way.Develop your personal motivation skills.Motivation is defined as “the intention of achieving a goal, leading to goal-directed behavior.”Columbia encyclopedia. (2004). New York: Columbia University Press. When we refer to someone as being motivated, we mean that the person is trying hard to accomplish a certain task. Motivation is clearly important for someone to perform well. However, motivation alone is not sufficient. Ability—having the skills and knowledge required to perform the job—is also important and is sometimes the key determinant of effectiveness. Finally, environmental factors—having the resources, information, and support one needs to perform well—are also critical to determine performance.Figure 14.2 The P-O-L-C FrameworkWhat makes employees willing to “go the extra mile” to provide excellent service, market a company’s products effectively, or achieve the goals set for them? Answering questions like this is of utmost importance to understand and manage the work behavior of our peers, subordinates, and even supervisors. As with many questions involving human beings, the answers are anything but simple. Instead, there are several theories explaining the concept of motivation.Figure 14.3According to this equation, motivation, ability, and environment are the major influences over employee performance.Source: Mitchell, T. R. (1982). Motivation: New directions for theory, research, and practice. The Academy of Management Review, 7, 80–88; Porter, L. W. & Lawler, E. E. (1968). Managerial attitudes and performance. Homewood, IL: Dorsey Press14.1 Case in Point: Zappos Creates a Motivating Place to WorkIt is unique to hear about a CEO who studies happiness and motivation and builds those principles into the company’s core values or about a company with a 5-week training course and an offer of $2,000 to quit anytime during that 5 weeks if you feel the company is not a good fit. Top that off with an on-site life coach who also happens to be a chiropractor, and you are really talking about something you don’t hear about every day. Zappos is known as much for its 365-day return policy and free shipping as it is for its innovative corporate culture. Although acquired in 2009 by Amazon (NASDAQ: AMZN), Zappos managed to move from number 23 in 2009 on Fortune magazine’s “100 Best Companies to Work For” list to 15 in 2010.Performance is a function of motivation, ability, and the environment in which you work. Zappos seems to be creating an environment that encourages motivation and builds inclusiveness. The company delivers above and beyond basic workplace needs and addresses the self-actualization needs that most individuals desire from their work experience. CEO Tony Hsieh believes that the secret to customer loyalty is to make a corporate culture of caring a priority. This is reflected in the company’s 10 core values and its emphasis on building a team and a family. During the interview process, applicants are asked questions relating to the company’s values, such as gauging their own weirdness, open-mindedness, and sense of family. Although the offer to be paid to quit during the training process has increased from its original number of $400, only 1% of trainees take the offer. Work is structured differently at Zappos as well. For example, there is no limit to the time customer service representatives spend on a phone call, and they are encouraged to make personal connections with the individuals on the other end rather than try to get rid of them.Although Zappos has over 1,300 employees, the company has been able to maintain a relatively flat organizational structure and prides itself on its extreme transparency. In an exceptionally detailed and lengthy letter to employees, Hsieh spelled out what the new partnership with Amazon would mean for the company, what would change, and more important, what would remain the same. As a result of this type of company structure, individuals have more freedom, which can lead to greater satisfaction.Although Zappos pays its employees well and offers attractive benefits such as employees receiving full health-care coverage and a compressed workweek, the desire to work at Zappos seems to go beyond that. As Hsieh would say, happiness is the driving force behind almost any action an individual takes. Whether your goals are for achievement, affiliation, or simply to find an enjoyable environment in which to work, Zappos strives to address these needs.Case written by [citation redacted per publisher request]. Based on information from Robischon, N. (2009, July 22). Amazon buys Zappos for $847 million. Fast Company. Retrieved February 28, 2010, from http://www.fastcompany.com/blog/noah-robischon/editors-desk/amazon -buys-zappos-807-million; Walker, A. (2009, March 14). Zappos’ Tony Hsieh on Twitter, phone calls and the pursuit of happiness. Fast Company. Retrieved February 27, 2010, from http://www.fastcompany.com/blog/alissa-walker/member-blog/tony-hsiehs-zapposcom; Happy feet—Inside the online shoe utopia. (2009, September 14). New Yorker. Retrieved February 28, 2010, from http://about.zappos.com/press-center/media-coverage/happy-feet-inside-online-shoe-utopia; 100 best companies to work for. (2010, February 8). Fortune. Retrieved February 26, 2010, from http://money.cnn.com/magazines/fortune/bestcompanies/2010/snapshots/15.html.DISCUSSION QUESTIONSMotivation is an essential element of the leading facet of the P-O-L-C framework. What are other means that organizations use to motivate employees besides those used by Zappos?What potential organizational changes might result from the acquisition by Amazon?Why do you think Zappos’ approach is not utilized more often? In other words, what are the challenges to these techniques?Why do you think Zappos offers a $2,000 incentive to quit?Would you be motivated to work at Zappos? Why or why not?14.2 Need-Based Theories of MotivationLEARNING OBJECTIVESExplain how employees are motivated according to Maslow’s hierarchy of needs.Explain how ERG theory addresses the limitations of Maslow’s hierarchy.Describe the difference between factors contributing to employee motivation and how these differ from factors contributing to dissatisfaction.Describe the needs for achievement, power, and affiliation, and how these needs affect work behavior.The earliest answer to motivation involved understanding individual needs. Specifically, early researchers thought that employees try hard and demonstrate goal-driven behavior to satisfy needs. For example, an employee who is always walking around the office talking to people may have a need for companionship and his behavior may be a way of satisfying this need. There are four major theories in the need-based category: Maslow’s hierarchy of needs, ERG theory, Herzberg’s dual factor theory, and McClelland’s acquired needs theory.Maslow’s Hierarchy of NeedsAbraham Maslow is among the most prominent psychologists of the 20th century and the hierarchy of needs, accompanied by the pyramid representing how human needs are ranked, is an image familiar to most business students and managers. Maslow’s theory is based on a simple premise: Human beings have needs that are hierarchically ranked.Maslow, A. H. (1943). A theory of human motivation. Psychological Review, 50, 370–396; Maslow, A. H. (1954). Motivation and personality. New York: Harper. There are some needs that are basic to all human beings, and in their absence, nothing else matters. As we satisfy these basic needs, we start looking to satisfy higher-order needs. Once a lower-level need is satisfied, it no longer serves as a motivator.The most basic of Maslow’s needs are physiological needs. Physiological needs refer to the need for air, food, and water. Imagine being very hungry. At that point, all your behavior may be directed at finding food. Once you eat, though, the search for food ceases and the promise of food no longer serves as a motivator. Once physiological needs are satisfied, people tend to become concerned about safety. Are they safe from danger, pain, or an uncertain future? One level up, social needs refer to the need to bond with other human beings, to be loved, and to form lasting attachments. In fact, having no attachments can negatively affect health and well-being.Baumeister, R. F., & Leary, M. R. (1995). The need to belong: Desire for interpersonal attachments as a fundamental human motivation. Psychological Bulletin, 117, 497–529. The satisfaction of social needs makes esteem needs more salient. Esteem needs refer to the desire to be respected by one’s peers, feeling important, and being appreciated. Finally, at the highest level of the hierarchy, the need for self-actualization refers to “becoming all you are capable of becoming.” This need manifests itself by acquiring new skills, taking on new challenges, and behaving in a way that will lead to the satisfaction of one’s life goals.Figure 14.5 Maslow’s Hierarchy of NeedsSource: Adapted from Maslow, A. H. (1954). Motivation and personality. New York: Harper.Maslow’s hierarchy is a systematic way of thinking about the different needs employees may have at any given point and explains different reactions they may have to similar treatment. An employee who is trying to satisfy her esteem needs may feel gratified when her supervisor praises her. However, another employee who is trying to satisfy his social needs may resent being praised by upper management in front of peers if the praise sets him apart from the rest of the group.So, how can organizations satisfy their employees’ various needs? By leveraging the various facets of the planning-organizing-leading-controlling (P-O-L-C) functions. In the long run, physiological needs may be satisfied by the person’s paycheck, but it is important to remember that pay may satisfy other needs such as safety and esteem as well. Providing generous benefits, including health insurance and company-sponsored retirement plans, as well as offering a measure of job security, will help satisfy safety needs. Social needs may be satisfied by having a friendly environment, providing a workplace conducive to collaboration and communication with others. Company picnics and other social get-togethers may also be helpful if the majority of employees are motivated primarily by social needs (but may cause resentment if they are not and if they have to sacrifice a Sunday afternoon for a company picnic). Providing promotion opportunities at work, recognizing a person’s accomplishments verbally or through more formal reward systems, job titles that communicate to the employee that one has achieved high status within the organization are among the ways of satisfying esteem needs. Finally, self-actualization needs may be satisfied by providing development and growth opportunities on or off the job, as well as by assigning interesting and challenging work. By making the effort to satisfy the different needs each employee may have at a given time, organizations may ensure a more highly motivated workforce.ERG TheoryERG theory of Clayton Alderfer is a modification of Maslow’s hierarchy of needs.Alderfer, C. P. (1969). An empirical test of a new theory of human needs. Organizational Behavior and Human Performance, 4, 142–175. Instead of the five needs that are hierarchically organized, Alderfer proposed that basic human needs may be grouped under three categories, namely, Existence, Relatedness, and Growth (see the following figure). Existence need corresponds to Maslow’s physiological and safety needs, relatedness corresponds to social needs, and growth need refers to Maslow’s esteem and self actualization.Figure 14.7 ERG TheorySource: Based on Alderfer, C. P. (1969). An empirical test of a new theory of human needs. Organizational Behavior and Human Performance, 4, 142–175.ERG theory’s main contribution to the literature is its relaxation of Maslow’s assumptions. For example, ERG theory does not rank needs in any particular order and explicitly recognizes that more than one need may operate at a given time. Moreover, the theory has a “frustration-regression” hypothesis, suggesting that individuals who are frustrated in their attempts to satisfy one need may regress to another one. For example, someone who is frustrated by the lack of growth opportunities in his job and slow progress toward career goals may regress to relatedness needs and start spending more time socializing with one’s coworkers. The implication of this theory is that we need to recognize the multiple needs that may be driving an individual at a given point to understand his behavior and to motivate him.Two-Factor TheoryFrederick Herzberg approached the question of motivation in a different way. By asking individuals what satisfies them on the job and what dissatisfies them, Herzberg came to the conclusion that aspects of the work environment that satisfy employees are very different from aspects that dissatisfy them.Herzberg, F., Mausner, B., & Snyderman, B. (1959). The motivation to work. New York: Wiley; Herzberg, F. (1965). The motivation to work among Finnish supervisors. Personnel Psychology, 18, 393–402. Herzberg labeled factors causing dissatisfaction of workers as “hygiene” factors because these factors were part of the context in which the job was performed, as opposed to the job itself. Hygiene factors included company policies, supervision, working conditions, salary, safety, and security on the job. To illustrate, imagine that you are working in an unpleasant work environment. Your office is too hot in the summer and too cold in the winter. You are being harassed and mistreated. You would certainly be miserable in such a work environment. However, if these problems were solved (your office temperature is just right and you are not harassed at all), would you be motivated? Most likely, you would take the situation for granted. In fact, many factors in our work environment are things that we miss when they are absent, but take for granted if they are present.In contrast, motivators are factors that are intrinsic to the job, such as achievement, recognition, interesting work, increased responsibilities, advancement, and growth opportunities. According to Herzberg’s research, motivators are the conditions that truly encourage employees to try harder.Figure 14.8 Two-Factor Theory of MotivationSource: Based on Herzberg, F., Mausner, B., & Snyderman, B. (1959). The motivation to work. New York: Wiley; Herzberg, F. (1965). The motivation to work among Finnish supervisors. Personnel Psychology, 18, 393–402.Herzberg’s research, which is summarized in the figure above, has received its share of criticism.Cummings, L. L., & Elsalmi, A. M. (1968). Empirical research on the bases and correlates of managerial motivation. Psychological Bulletin, 70, 127–144; House, R. J., & Wigdor, L. A. (1967). Herzberg’s dual-factor theory of job satisfaction and motivation: A review of the evidence and a criticism. Personnel Psychology, 20, 369–389. One criticism relates to the classification of the factors as hygiene or motivator. For example, pay is viewed as a hygiene factor. However, pay is not necessarily a contextual factor and may have symbolic value by showing employees that they are being recognized for their contributions as well as communicating to them that they are advancing within the company. Similarly, quality of supervision or relationships employees form with their supervisors may determine whether they are assigned interesting work, whether they are recognized for their potential, and whether they take on more responsibilities. Despite its limitations, the two-factor theory can be a valuable aid to managers because it points out that improving the environment in which the job is performed goes only so far in motivating employees.Acquired Needs TheoryAmong the need-based approaches to motivation, Douglas McClelland’s acquired needs theory is the one that has received the greatest amount of support. According to this theory, individuals acquire three types of needs as a result of their life experiences. These needs are need for achievement, need for affiliation, and need for power. All individuals possess a combination of these needs.Those who have high need for achievement have a strong need to be successful. A worker who derives great satisfaction from meeting deadlines, coming up with brilliant ideas, and planning his or her next career move may be high in need for achievement. Individuals high on need for achievement are well suited to positions such as sales where there are explicit goals, feedback is immediately available, and their effort often leads to success.Harrell, A. M., & Stahl, M. J. (1981). A behavioral decision theory approach for measuring McClelland’s trichotomy of needs. Journal of Applied Psychology, 66, 242–247; Trevis, C. S., & Certo, S. C. (2005). Spotlight on entrepreneurship. Business Horizons, 48, 271–274; Turban, D. B., & Keon, T. L. (1993). Organizational attractiveness: An interactionist perspective. Journal of Applied Psychology, 78, 184–193. Because of their success in lower-level jobs, those in high need for achievement are often promoted to higher-level positions.McClelland, D. C., & Boyatzis, R. E. (1982). Leadership motive pattern and long-term success in management. Journal of Applied Psychology, 67, 737–743. However, a high need for achievement has important disadvantages in management. Management involves getting work done by motivating others. When a salesperson is promoted to be a sales manager, the job description changes from actively selling to recruiting, motivating, and training salespeople. Those who are high in need for achievement may view managerial activities such as coaching, communicating, and meeting with subordinates as a waste of time. Moreover, they enjoy doing things themselves and may find it difficult to delegate authority. They may become overbearing or micromanaging bosses, expecting everyone to be as dedicated to work as they are, and expecting subordinates to do things exactly the way they are used to doing.McClelland, D. C., & Burnham, D. H. (1976). Power is the great motivator. Harvard Business Review, 25, 159–166.Individuals who have a high need for affiliation want to be liked and accepted by others. When given a choice, they prefer to interact with others and be with friends.Wong, M. M., & Csikszentmihalyi, M. (1991). Affiliation motivation and daily experience: Some issues on gender differences. Journal of Personality and Social Psychology, 60, 154–164. Their emphasis on harmonious interpersonal relationships may be an advantage in jobs and occupations requiring frequent interpersonal interaction, such as social worker or teacher. In managerial positions, a high need for affiliation may again serve as a disadvantage because these individuals tend to be overly concerned about how they are perceived by others. Thus, they may find it difficult to perform some aspects of a manager’s job such as giving employees critical feedback or disciplining poor performers.Finally, those with high need for power want to influence others and control their environment. Need for power may be destructive of one’s relationships if it takes the form of seeking and using power for one’s own good and prestige. However, when it manifests itself in more altruistic forms, such as changing the way things are done so that the work environment is more positive or negotiating more resources for one’s department, it tends to lead to positive outcomes. In fact, need for power is viewed as important for effectiveness in managerial and leadership positions.McClelland, D. C., & Burnham, D. H. (1976). Power is the great motivator. Harvard Business Review, 25, 159–166; Spangler, W. D., & House, R. J. (1991). Presidential effectiveness and the leadership motive profile. Journal of Personality and Social Psychology, 60, 439–455; Spreier, S. W. (2006). Leadership run amok. Harvard Business Review, 84, 72–82.McClelland’s theory of acquired needs has important implications for motivating employees. While someone who has high need for achievement may respond to goals, those with high need for affiliation may be motivated to gain the approval of their peers and supervisors, whereas those who have high need for power may value gaining influence over the supervisor or acquiring a position that has decision-making authority. And, when it comes to succeeding in managerial positions, individuals who are aware of the drawbacks of their need orientation can take steps to overcome these drawbacks.KEY TAKEAWAYNeed-based theories describe motivated behavior as individual efforts to meet needs. According to this perspective, the manager’s job is to identify what people need and then to make sure that the work environment becomes a means of satisfying these needs. Maslow’s hierarchy categorizes human needs into physiological, safety, social, esteem, and self-actualization needs. ERG theory is a modification of Maslow’s hierarchy, where the five needs are collapsed into three categories (existence, relatedness, and growth). The two-factor theory differentiates between factors that make people dissatisfied on the job (hygiene factors) and factors that truly motivate employees. Finally, acquired-needs theory argues that individuals possess stable and dominant motives to achieve, acquire power, or affiliate with others. Each of these theories explains characteristics of a work environment that motivate employees.EXERCISESMany managers assume that if an employee is not performing well, the reason must be lack of motivation. What is the problem with this assumption?Review Maslow’s hierarchy of needs. Do you agree with the particular ranking of employee needs?Review the hygiene and motivators in the two-factor theory. Are there any hygiene factors that you would consider to be motivators and vice versa?A friend of yours is competitive, requires frequent and immediate feedback, and enjoys accomplishing things. She has recently been promoted to a managerial position and seeks your advice. What would you tell her?Which motivation theory have you found to be most useful in explaining why people behave in a certain way? Why?14.3 Process-Based TheoriesLEARNING OBJECTIVESExplain how employees evaluate the fairness of reward distributions.List the three questions individuals consider when deciding whether to put forth effort at work.Describe how managers can use learning and reinforcement principles to motivate employees.Learn the role that job design plays in motivating employees.Describe why goal setting motivates employees.In contrast to the need-based theories we have covered so far, process-based theories view motivation as a rational process. Individuals analyze their environment, develop reactions and feelings, and react in certain ways. Under this category, we will review equity theory, expectancy theory, and reinforcement theory. We will also discuss the concepts of job design and goal setting as motivational strategies.Equity TheoryImagine that your friend Marie is paid $10 an hour working as an office assistant. She has held this job for six months. She is very good at what she does, she comes up with creative ways to make things easier in the workplace, and she is a good colleague who is willing to help others. She stays late when necessary and is flexible if asked to rearrange her priorities or her work hours. Now imagine that Marie finds out her manager is hiring another employee, Spencer, who is going to work with her, who will hold the same job title and will perform the same type of tasks. Spencer has more advanced computer skills, but it is unclear whether these will be used on the job. The starting pay for Spencer will be $14 an hour. How would Marie feel? Would she be as motivated as before, going above and beyond her duties?If your reaction to this scenario was along the lines of “Marie would think it’s unfair,” your feelings may be explained using equity theory.Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in experimental social psychology (Vol. 2, 267–299). New York: Academic Press. According to this theory, individuals are motivated by a sense of fairness in their interactions. Moreover, our sense of fairness is a result of the social comparisons we make. Specifically, we compare our inputs and outputs with someone else’s inputs and outputs. We perceive fairness if we believe that the input-to-output ratio we are bringing into the situation is similar to the input/output ratio of a comparison person, or a referent. Perceptions of inequity create tension within us and drive us to action that will reduce perceived inequity. This process is illustrated in the Equity Formula.Figure 14.10 The Equity FormulaSource: Based on Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in Experimental Social Psychology (Vol. 2, pp. 267–299). New York: Academic Press.What Are Inputs and Outputs?Inputs are the contributions the person feels he or she is making to the environment. In the previous example, the hard work Marie was providing, loyalty to the organization, the number of months she has worked there, level of education, training, and her skills may have been relevant inputs. Outputs are the rewards the person feels he or she is receiving from the situation. The $10 an hour Marie is receiving was a salient output. There may be other outputs, such as the benefits received or the treatment one gets from the boss. In the prior example, Marie may reason as follows: “I have been working here for six months. I am loyal and I perform well (inputs). I am paid $10 an hour for this (outputs). The new guy, Spencer, does not have any experience here (referent’s inputs) but will be paid $14 (referent’s outcomes). This situation is unfair.”We should emphasize that equity perceptions develop as a result of a subjective process. Different people may look at exactly the same situation and perceive different levels of equity. For example, another person may look at the same scenario and decide that the situation is fair because Spencer has computer skills and the company is paying extra for these skills.Who Is the Referent?The referent other may be a specific person or an entire category of people. For example, Marie might look at want ads for entry-level clerical workers and see whether the pay offered is in the $10 per hour range; in this case, the referent other is the category of entry-level clerical workers, including office assistants, in Marie’s local area. Referents should be comparable to us—otherwise the comparison is not meaningful. It would be illogical for Marie to compare herself to the CEO of the company, given the differences in the nature of inputs and outcomes. Instead, she would logically compare herself to those performing similar tasks within the same organization or a different organization.Reactions to UnfairnessThe theory outlines several potential reactions to perceived inequity, which are summarized in Table 14.1 "Potential Responses to Inequity". Oftentimes, the situation may be dealt with perceptually, by distorting our perceptions of our own or referent’s inputs and outputs. For example, Marie may justify the situation by downplaying her own inputs (“I don’t really work very hard on this job”), valuing the outputs more highly (“I am gaining valuable work experience, so the situation is not that bad”), distorting the other person’s inputs (“Spencer really is more competent than I am and deserves to be paid more”) or distorting the other person’s outputs (“Spencer gets $14 but will have to work with a lousy manager, so the situation is not unfair”).Table 14.1 Potential Responses to InequityReactions to inequityExampleDistort perceptionsChanging one’s thinking to believe that the referent actually is more skilled than previously thoughtIncrease referent’s inputsEncouraging the referent to work harderReduce own inputDeliberately putting forth less effort at work. Reducing the quality of one’s workIncrease own outcomesNegotiating a raise for oneself or using unethical ways of increasing rewards such as stealing from the companyChange referentComparing oneself to someone who is worse offLeave the situationQuitting one’s jobSeek legal actionSuing the company or filing a complaint if the unfairness in question is under legal protectionSource: Based on research findings reported in Carrell, M. R., & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological considerations, and new directions. Academy of Management Review, 3, 202–210; Goodman, P. S., & Friedman, A. (1971). An examination of Adams’s theory of inequity. Administrative Science Quarterly, 16, 271–288; Greenberg, J. (1993). Stealing in the name of justice: Informational and interpersonal moderators of theft reactions to underpayment inequity. Organizational Behavior and Human Decision Processes, 54, 81–103; Schmidt, D. R., & Marwell, G. (1972). Withdrawal and reward reallocation as responses to inequity. Journal of Experimental Social Psychology, 8, 207–211.Another way of addressing perceived inequity is to reduce one’s own inputs or increase one’s own outputs. If Marie works less hard, perceived inequity would be reduced. And, indeed, research shows that people who perceive inequity tend to reduce their work performance or reduce the quality of their inputs.Carrell, M. R., & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological considerations, and new directions. Academy of Management Review, 3, 202–210; Goodman, P. S., & Friedman, A. (1971). An examination of Adams’ theory of inequity. Administrative Science Quarterly, 16, 271–288. Increasing one’s outputs can be achieved through legitimate means such as negotiating a pay raise. At the same time, research shows that those feeling inequity sometimes resort to stealing to balance the scales.Greenberg, J. (1993). Stealing in the name of justice: Informational and interpersonal moderators of theft reactions to underpayment inequity. Organizational Behavior and Human Decision Processes, 54, 81–103. Other options include changing the comparison person (for example, Marie may learn that others doing similar work in different organizations are paid only minimum wage) and leaving the situation by quitting one’s job.Schmidt, D. R., & Marwell, G. (1972). Withdrawal and reward reallocation as responses to inequity. Journal of Experimental Social Psychology, 8, 207–211. We might even consider taking legal action as a potential outcome of perceived inequity. For example, if Marie finds out that the main reason behind the pay gap is gender, she may react to the situation by taking legal action because sex discrimination in pay is illegal in the United States.Overpayment InequityWhat would you do if you felt you were overrewarded? In other words, how would you feel if you were the new employee, Spencer (and you knew that your coworker Marie was being paid $4 per hour less than you)? Originally, equity theory proposed that overrewarded individuals would experience guilt and would increase their effort to restore perceptions of equity. However, research does not provide support for this argument. Instead, it seems that individuals experience less distress as a result of being overrewarded.Austin, W., & Walster, E. (1974). Reactions to confirmations and disconfirmations of expectancies of equity and inequity. Journal of Personality and Social Psychology, 30, 208–216. It is not hard to imagine that individuals find perceptual ways to deal with a situation like this, such as believing that they have more skills and bring more to the situation compared with the referent person. Therefore, research does not support equity theory’s predictions with respect to people who are overpaid.Evan, W. M., & Simmons, R. G. (1969). Organizational effects of inequitable rewards: Two experiments in status inconsistency. IEEE Engineering Management Review, 1, 95–108.Individual Differences in Reactions to InequitySo far, we have assumed that once people feel that the situation is inequitable, they will be motivated to react. However, does inequity disturb everyone equally? Researchers identified a personality trait that explains different reactions to inequity and named this trait equity sensitivity.Huseman, R. C., Hatfield, J. D., & Miles, E. W. (1987). A new perspective on equity theory: The equity sensitivity construct. Academy of Management Review, 12, 222–234. Equity sensitive individuals experience distress when they feel they are overrewarded or underrewarded and expect to maintain equitable relationships. At the same time, there are some individuals who are benevolents who give without waiting to receive much in return and entitleds who expect to receive a lot without giving much in return. Thus, the theory is more useful in explaining the behavior of equity sensitive individuals, and organizations will need to pay particular attention to how these individuals view their relationships.Fairness Beyond Equity: Procedural and Interactional JusticeEquity theory looks at perceived fairness as a motivator. However, the way equity theory defines fairness is limited to fairness regarding rewards. Starting in the 1970s, researchers of workplace fairness began taking a broader view of justice. Equity theory deals with outcome fairness, and therefore, it is considered to be a distributive justice theory. Distributive justice refers to the degree to which the outputs received from the organization are fair. Two other types of fairness have been identified: Procedural justice and interactional justice.Let’s assume that Marie found out she is getting a promotion that will include a pay raise, increased responsibilities, and prestige. If Marie feels she deserves to be promoted, she would perceive high distributive justice (“getting the promotion is fair”). However, Marie later found out that the department manager picked her name out of a hat! What would she feel? She might still like the outcome but feel that the decision-making process was unfair since it wasn’t based on performance. This response would involve feelings of procedural injustice. Procedural justice refers to the degree to which fair decision-making procedures are used. Research shows that employees care about procedural justice for many organizational decisions, including layoffs, employee selection, surveillance of employees, performance appraisals, and pay decisions.Alge, B. J. (2001). Effects of computer surveillance on perceptions of privacy and procedural justice. Journal of Applied Psychology, 86, 797–804; Bauer, T. N., Maertz, C. P., Jr., Dolen, M. R., & Campion, M. A. (1998). Longitudinal assessment of applicant reactions to employment testing and test outcome feedback. Journal of Applied Psychology, 83, 892–903.; Kidwell, R. E. (1995). Pink slips without tears. Academy of Management Executive, 9, 69–70. They tend to care about procedural justice particularly when they do not get the outcome they feel they deserve.Brockner, J., & Wiesenfeld, B. M. (1996). An integrative framework for explaining reactions to decisions: Interactive effects of outcomes and procedures. Psychological Bulletin, 120, 189–208. If Marie does not get the promotion and finds out that management chose the candidate by picking a name out of a hat, she may view this as adding insult to injury. When people do not get the rewards they want, they tend to hold management responsible if procedures are not fair.Brockner, J., Fishman, A. Y., Reb, J., Goldman, B., Spiegel, S., & Garden, C. (2007). Procedural fairness, outcome favorability, and judgments of an authority’s responsibility. Journal of Applied Psychology, 92, 1657–1671.Research has identified many ways of achieving procedural justice. For example, giving employees advance notice before laying them off, firing them, or disciplining them is perceived as fairer.Kidwell, R. E. (1995). Pink slips without tears. Academy of Management Executive, 9, 69–70. Allowing employees voice into decision making is also important.Alge, B. J. (2001). Effects of computer surveillance on perceptions of privacy and procedural justice. Journal of Applied Psychology, 86, 797–804; Kernan, M. C., & Hanges, P. J. (2002). Survivor reactions to reorganization: Antecedents and consequences of procedural, interpersonal, and informational justice. Journal of Applied Psychology, 87, 916–928; Lind, E. A., Kanfer, R., & Earley, C. P. (1990). Voice, control, and procedural justice: Instrumental and noninstrumental concerns in fairness judgments. Journal of Personality and Social Psychology, 59, 952–959. When designing a performance appraisal system or implementing a reorganization, asking employees for their input may be a good idea because it increases perceptions of fairness. Even when it is not possible to have employees participate, providing explanations is helpful in fostering procedural justice.Schaubroeck, J., May, D. R., & William, B. F. (1994). Procedural justice explanations and employee reactions to economic hardship: A field experiment. Journal of Applied Psychology, 79, 455–460. Finally, people expect consistency in treatment.Bauer, T. N., Maertz, C. P., Jr., Dolen, M. R., & Campion, M. A. (1998). Longitudinal assessment of applicant reactions to employment testing and test outcome feedback. Journal of Applied Psychology, 83, 892–903. If one person is given extra time when taking a test while another is not, individuals would perceive decision making as unfair.Now let’s imagine Marie’s boss telling her she is getting the promotion. The manager’s exact words: “Yes, Marie, we are giving you the promotion. The job is so simple that we thought even you can handle it.” Now what is Marie’s reaction? The unpleasant feelings she may now experience are explained by interactional justice. Interactional justice refers to the degree to which people are treated with respect, kindness, and dignity in interpersonal interactions. We expect to be treated with dignity by our peers, supervisors, and customers. When the opposite happens, we feel angry. Even when faced with negative outcomes such as a pay cut, being treated with dignity and respect serves as a buffer and alleviates our stress.Greenberg, J. (2006). Losing sleep over organizational injustice: Attenuating insomniac reactions to underpayment inequity with supervisory training in interactional justice. Journal of Applied Psychology, 91, 58–69.Employers would benefit from paying attention to all three types of justice perceptions. In addition to being the right thing to do, justice perceptions lead to outcomes companies care about. Injustice is directly harmful to employee psychological health and well-being and contributes to stress.Greenberg, J. (2004). Managing workplace stress by promoting organizational justice. Organizational Dynamics, 33, 352–365; Tepper, B. J. (2001). Health consequences of organizational injustice: tests of main and interactive effects. Organizational Behavior and Human Decision Processes, 86, 197–215. High levels of justice create higher levels of employee commitment to organizations, are related to higher job performance, higher levels of organizational citizenship (behaviors that are not part of one’s job description but help the organization in other ways such as speaking positively about the company and helping others), and higher levels of customer satisfaction, whereas low levels of justice lead to retaliation and supporting union certification movements.Blader, S. L. (2007). What leads organizational members to collectivize? Injustice and identification as precursors of union certification. Organization Science, 18, 108–126; Cohen-Charash Y., & Spector P. E. (2001). The role of justice in organizations: A meta-analysis. Organizational Behavior and Human Decision Processes, 86, 278–321; Colquitt, J. A., Conlon, D. E., Wesson, M. J., Porter, C. O. L. H., & Ng, K. Y. (2001). Justice at the millennium: A meta-analytic review of 25 years of organizational justice research. Journal of Applied Psychology, 86, 425–445; Cropanzano, R., Bowen, D. E., & Gilliland, S. W. (2007). The management of organizational justice. Academy of Management Perspectives, 21, 34–48; Masterson, S. S. (2001). A trickle-down model of organizational justice: Relating employees’ and customers’ perceptions of and reactions to fairness. Journal of Applied Psychology, 86, 594–604; Masterson, S. S., Lewis, K., Goldman, B. M., & Taylor, S. M. (2000). Integrating justice and social exchange: The differing effects of fair procedures and treatment on work relationships. Academy of Management Journal, 43, 738–748; Moorman, R. H. (1991). Relationship between organizational justice and organizational citizenship behaviors: Do fairness perceptions influence employee citizenship? Journal of Applied Psychology, 76, 845–855; Skarlicki, D. P., & Folger, R. (1997). Retaliation in the workplace: The roles of distributive, procedural, and interactional justice. Journal of Applied Psychology, 82, 434–443.Expectancy TheoryAccording to expectancy theory, individual motivation to put forth more or less effort is determined by a rational calculation.Porter, L. W., & Lawler, E. E. (1968). Managerial attitudes and performance. Homewood: IL: Irwin; Vroom, V. H. (1964). Work and motivation. New York: Wiley. According to this theory, individuals ask themselves three questions.Figure 14.11 Summary of Expectancy TheorySource: Based on Porter, L. W., & Lawler, E. E. (1968). Managerial attitudes and performance. Homewood, IL: Irwin; Vroom, V. H. (1964). Work and motivation. New York: Wiley.The first question is whether the person believes that high levels of effort will lead to desired outcomes. This perception is labeled as expectancy. For example, do you believe that the effort you put forth in a class is related to learning worthwhile material and receiving a good grade? If you do, you are more likely to put forth effort.The second question is the degree to which the person believes that performance is related to secondary outcomes such as rewards. This perception is labeled as instrumentality. For example, do you believe that passing the class is related to rewards such as getting a better job, or gaining approval from your instructor, from your friends, or parents? If you do, you are more likely to put forth effort.Finally, individuals are also concerned about the value of the rewards awaiting them as a result of performance. The anticipated satisfaction that will result from an outcome is labeled as valence. For example, do you value getting a better job or gaining approval from your instructor, friends, or parents? If these outcomes are desirable to you, you are more likely to put forth effort.As a manager, how can you influence these perceptions to motivate employees? In fact, managers can influence all three perceptions.Cook, C. W. (1980). Guidelines for managing motivation. Business Horizons, 23, 61–69. To influence their expectancy perceptions, managers may train their employees, or hire people who are qualified for the jobs in question. Low expectancy may also be due to employees feeling that something other than effort predicts performance, such as political behaviors on the part of employees. In this case, clearing the way to performance and creating an environment in which employees do not feel blocked will be helpful. The first step in influencing instrumentality is to connect pay and other rewards to performance using bonuses, award systems, and merit pay. Publicizing any contests or award programs is helpful in bringing rewards to the awareness of employees. It is also important to highlight that performance and not something else is being rewarded. For example, if a company has an employee-of-the-month award that is rotated among employees, employees are unlikely to believe that performance is being rewarded. In the name of being egalitarian, such a reward system may actually hamper the motivation of highest performing employees by eroding instrumentality. Finally, to influence valence, managers will need to find out what their employees value. This can be done by talking to employees, or surveying them about what rewards they find valuable.Reinforcement TheoryReinforcement theory is based on the work of Ivan Pavlov in behavioral conditioning and the later work B. F. Skinner did on operant conditioning.Skinner, B. F. (1953). Science and human behavior. New York: Free Press. According to this theory, behavior is a function of its consequences. Imagine that even though no one asked you to, you stayed late and drafted a report. When the manager found out, she was ecstatic and took you out to lunch and thanked you genuinely. The consequences following your good deed were favorable, and therefore you are more likely to do similar good deeds in the future. In contrast, if your manager had said nothing about it and ignored the sacrifice you made, you would be less likely to demonstrate similar behaviors in the future, or your behavior would likely become extinct.Despite the simplicity of reinforcement theory, how many times have you seen positive behavior ignored or, worse, negative behavior rewarded? In many organizations, this is a familiar scenario. People go above and beyond the call of duty, and yet their behaviors are ignored or criticized. People with disruptive habits may receive no punishments because the manager is afraid of the reaction the person will give when confronted. They may even receive rewards such as promotions so that the person is transferred to a different location and becomes someone else’s problem! Moreover, it is common for people to be rewarded for the wrong kind of behavior. Steven Kerr labeled this phenomenon as “the folly of rewarding A while hoping for B.”Kerr, S. (1995). On the folly of rewarding A while hoping for B. Academy of Management Executive, 9, 7–14. For example, a company may make public statements about the importance of quality. Yet, they choose to reward shipments on time regardless of the number of known defects contained in the shipments. As a result, employees are more likely to ignore quality and focus on hurrying the delivery process.Reinforcement InterventionsFigure 14.12 Reinforcement MethodsReinforcement theory describes four interventions to modify employee behavior. Two of these are methods of increasing the frequency of desired behaviors while the remaining two are methods of reducing the frequency of undesired behaviors.Positive reinforcement is a method of increasing the desired behavior.Beatty, R. W., & Schneier, C. E. (1975). A case for positive reinforcement. Business Horizons, 18, 57–66. Positive reinforcement involves making sure that behavior is met with positive consequences. Praising an employee for treating a customer respectfully is an example of positive reinforcement. If the praise immediately follows the positive behavior, the employee will see a link between behavior and positive consequences and will be motivated to repeat similar behaviors.Negative reinforcement is also used to increase the desired behavior. Negative reinforcement involves removal of unpleasant outcomes once desired behavior is demonstrated. Nagging an employee to complete a report is an example of negative reinforcement. The negative stimulus in the environment will remain present until positive behavior is demonstrated. The problem with negative reinforcement may be that the negative stimulus may lead to unexpected behaviors and may fail to stimulate the desired behavior. For example, the person may start avoiding the manager to avoid being nagged.Extinction occurs when a behavior ceases as a result of receiving no reinforcement. For example, suppose an employee has an annoying habit of forwarding e-mail jokes to everyone in the department, cluttering up people’s in-boxes and distracting them from their work. Commenting about the jokes, whether in favorable or unfavorable terms, may be encouraging the person to keep forwarding them. Completely ignoring the jokes may reduce their frequency.Punishment is another method of reducing the frequency of undesirable behaviors. Punishment involves presenting negative consequences following unwanted behaviors. Giving an employee a warning for consistently being late to work is an example of punishment.Reinforcement SchedulesIn addition to types of reinforcements, the timing or schedule on which reinforcement is delivered has a bearing on behavior.Beatty, R. W., & Schneier, C. E. (1975). A case for positive reinforcement. Business Horizons, 18, 57–66. Reinforcement is presented on a continuous schedule if reinforcers follow all instances of positive behavior. An example of a continuous schedule would be giving an employee a sales commission every time he makes a sale. Fixed ratio schedules involve providing rewards every nth time the right behavior is demonstrated, for example, giving the employee a bonus for every 10th sale he makes. Fixed interval schedules involve providing a reward after a specified period of time, such as giving a sales bonus once a month regardless of how many sales have been made. Variable ratio involves a random pattern, such as giving a sales bonus every time the manager is in a good mood.A systematic way in which reinforcement theory principles are applied is called Organizational Behavior Modification (or OB Mod).Luthans, F., & Stajkovic, A. D. (1999). Reinforce for performance: The need to go beyond pay and even rewards. Academy of Management Executive, 13, 49–57. This is a systematic application of reinforcement theory to modify employee behaviors. The model consists of five stages. The process starts with identifying the behavior that will be modified. Let’s assume that we are interested in reducing absenteeism among employees. In step 2, we need to measure the baseline level of absenteeism. In step 3, the behavior’s antecedents and consequences are determined. Why are employees absent? More importantly, what is happening when an employee is absent? If the behavior is being unintentionally rewarded, we may expect these to reinforce absenteeism behavior. For example, suppose that absences peak each month on the days when a departmental monthly report is due, meaning that coworkers and supervisors must do extra work to prepare the report. To reduce the frequency of absenteeism, it will be necessary to think of financial or social incentives to follow positive behavior and negative consequences to follow negative behavior. In step 4, an intervention is implemented. Removing the positive consequences of negative behavior may be an effective way of dealing with the situation, for example, starting the monthly report preparation a few days earlier, or letting employees know that if they are absent when the monthly report is being prepared, their contribution to the report will be submitted as incomplete until they finish it. Punishments may be used in persistent cases. Finally, in step 5 the behavior is measured periodically and maintained. Studies examining the effectiveness of OB Mod have been supportive of the model in general. A review of the literature found that OB Mod interventions resulted in an average of 17% improvement in performance.Stajkovic, A. D., & Luthans, F. (1997). A meta-analysis of the effects of organizational behavior modification on task performance, 1975–1995. Academy of Management Journal, 40, 1122–1149.Figure 14.14 Stages of OB ModificationBased on information presented in Stajkovic, A. D., & Luthans, F. (1997). A meta-analysis of the effects of organizational behavior modification on task performance, 1975-1995. Academy of Management Journal, 40, 1122–1149.Job DesignMany of us assume that the most important motivator at work would be pay. Yet, studies point to a different factor as the major influence over worker motivation: Job design. How a job is designed has a major impact on employee motivation, job satisfaction, commitment to organization, as well as absenteeism and turnover. Job design is just one of the many organizational design decisions managers must make when engaged in the organizing function.The question of how to properly design jobs so that employees are more productive and more satisfied has received managerial and research attention since the beginning of the 20th century.Scientific Management and Job SpecializationPerhaps the earliest attempt to design jobs was presented by Frederick Taylor in his 1911 book Principles of Scientific Management. Scientific management proposed a number of ideas that have been influential in job design. One idea was to minimize waste by identifying the best method to perform the job to ensure maximum efficiency. Another one of the major advances of scientific management was job specialization, which entails breaking down tasks to their simplest components and assigning them to employees so that each person would perform few tasks in a repetitive manner. While this technique may be very efficient in terms of automation and standardization, from a motivational perspective, these jobs will be boring and repetitive and therefore associated with negative outcomes such as absenteeism.Campion, M. A., & Thayer, P. W. (1987). Job design: Approaches, outcomes, and trade-offs. Organizational Dynamics, 15, 66–78. Job specialization is also an ineffective way of organizing jobs in rapidly changing environments where employees close to the problem should modify their approach based on the demands of the situation.Wilson, F. M. (1999). Rationalization and rationality From the founding fathers to eugenics. In Organizational behaviour: A critical introduction. Oxford: Oxford University Press.Rotation, Job Enlargement, and EnrichmentOne of the early alternatives to job specialization was job rotation, which involves moving employees from job to job at regular intervals, thereby relieving the monotony and boredom typical in repetitive jobs. For example, Maids International, a company that provides cleaning services to households and businesses, uses job rotation such that maids cleaning the kitchen in one house would clean the bedroom in another house.Denton, D. K. (1994). …I hate this job. Business Horizons, 37, 46–52. Using this technique, among others, the company was able to reduce its turnover level. In a study conducted in a supermarket, cashiers were rotated to work in different departments. As a result of the rotation, employee stress level was reduced as measured by their blood pressure. Moreover, they reported fewer pain symptoms in their neck and shoulders.Rissen, D., Melin, B., Sandsjo, L., Dohns, I., & Lundberg, U. (2002). Psychophysiological stress reactions, trapezius muscle activity, and neck and shoulder pain among female cashiers before and after introduction of job rotation. Work & Stress, 16, 127–137.Job rotation has a number of advantages for organizations. It is an effective way for employees to acquire new skills, as the rotation involves cross-training to new tasks; this means that organizations increase the overall skill level of their employees.Campion, M. A., Cheraskin, L., & Stevens, M. J. (1994). Career-related antecedents and outcomes of job rotation. Academy of Management Journal, 37, 1518–1542. In addition, job rotation is a means of knowledge transfer between departments.Kane, A. A., Argote, L., & Levine, J. M. (2005). Knowledge transfer between groups via personnel rotation: Effects of social identity and knowledge quality. Organizational Behavior and Human Decision Processes, 96, 56–71. For the employees, rotation is a benefit because they acquire new skills, which keeps them marketable in the long run.Anecdotal evidence suggests that companies successfully rotate high-level employees to train their managers and increase innovativeness in the company. For example, Nokia uses rotation at all levels, such as assigning lawyers to act as country managers or moving network engineers to handset design. These approaches are thought to bring a fresh perspective to old problems.Wylie, I. (May 2003). Calling for a renewable future. Fast Company, 70, 46–48. India’s information technology giant Wipro, which employs about 80,000 employees, uses a 3-year plan to groom future leaders of the company by rotating them through different jobs.Ramamurti, R. (2001). Wipro’s Chairman Azim Premji on Building a world-class Indian company. Academy of Management Executive, 15, 13–19.Job enlargement refers to expanding the tasks performed by employees to add more variety. Like job rotation, job enlargement can reduce boredom and monotony as well as use human resources more effectively. When jobs are enlarged, employees view themselves as being capable of performing a broader set of tasks.Parker, S. K. (1998). Enhancing role breadth self-efficacy: The roles of job enrichment and other organizational interventions. Journal of Applied Psychology, 83, 835–852. Job enlargement is positively related to employee satisfaction and higher-quality customer services, and it increases the chances of catching mistakes.Campion, M. A., & McClelland, C. L. (1991). Interdisciplinary examination of the costs and benefits of enlarged jobs: A job design quasi-experiment. Journal of Applied Psychology, 76, 186–198. At the same time, the effects of job enlargement may depend on the type of enlargement. For example, exclusively giving employees simpler tasks had negative consequences on employee satisfaction with the job of catching errors, whereas giving employees more tasks that require them to be knowledgeable in different areas seemed to have more positive effects.Campion, M. A., & McClelland, C. L. (1993). Follow-up and extension of the interdisciplinary costs and benefits of enlarged jobs. Journal of Applied Psychology, 78, 339–351.Job enrichment is a job redesign technique that allows workers more control over how they perform their own tasks, giving them more responsibility. As an alternative to job specialization, companies using job enrichment may experience positive outcomes such as reduced turnover, increased productivity, and reduced absences.McEvoy, G. M., & Cascio, W. F. (1985). Strategies for reducing employee turnover. Journal of Applied Psychology, 70, 342–353; Locke, E. A., Sirota, D., & Wolfson, A. D. (1976). An experimental case study of the successes and failures of job enrichment in a government agency. Journal of Applied Psychology, 61, 701–711. This may be because employees who have the authority and responsibility over their own work can be more efficient, eliminate unnecessary tasks, take shortcuts, and overall increase their own performance. At the same time, there is some evidence that job enrichment may sometimes cause employees to be dissatisfied.Locke, E. A., Sirota, D., & Wolfson, A. D. (1976). An experimental case study of the successes and failures of job enrichment in a government agency. Journal of Applied Pscyhology, 61, 701–711. The reason may be that employees who are given additional autonomy and responsibility may expect greater levels of pay or other types of compensation, and if this expectation is not met, they may feel frustrated. One more thing to remember is that job enrichment may not be suitable for all employees.Cherrington, D. J., & Lynn, E. J. (1980). The desire for an enriched job as a moderator of the enrichment-satisfaction relationship. Organizational Behavior and Human performance, 25, 139–159; Hulin, C. L., & Blood, M. R. (1968). Job enlargement, individual differences, and worker responses. Psychological Bulletin, 69, 41–55. Not all employees desire to have control over how they work, and if they do not have this desire, they may feel dissatisfied in an enriched job.Job Characteristics ModelThe job characteristics model is one of the most influential attempts to design jobs to increase their motivational properties.Hackman, J. R., & Oldham, G. R. (1975). Development of the job diagnostic survey. Journal of Applied Psychology, 60, 159–170. Proposed in the 1970s by Hackman and Oldham, the model describes five core job dimensions, leading to three critical psychological states, which lead to work-related outcomes. In this model, shown in the following figure, there are five core job dimensions.Figure 14.16 Job Characteristics ModelAdapted from Hackman, J. R., & Oldham, G. R. (1975). Development of the job diagnostic survey. Journal of Applied Psychology, 60, 159–170.Skill variety refers to the extent to which the job requires the person to use multiple high-level skills. A car wash employee whose job consists of directing employees into the automated carwash demonstrates low levels of skill variety, whereas a car wash employee who acts as a cashier, maintains carwash equipment, and manages the inventory of chemicals demonstrates high skill variety.Task identity refers to the degree to which the person completes a piece of work from start to finish. A Web designer who designs parts of a Web site will have low task identity because the work blends in with other Web designers’ work, and in the end, it will be hard for the person to claim responsibility for the final output. The Webmaster who designs the entire Web site will have high task identity.Task significance refers to whether the person’s job substantially affects other people’s work, health, or well-being. A janitor who cleans the floor at an office building may find the job low in significance, thinking it is not an important job. However, janitors cleaning the floors at a hospital may see their role as essential in helping patients recover in a healthy environment. When they see their tasks as significant, employees tend to feel that they are making an impact on their environment and their feelings of self worth are boosted. Grant, A. M. (2008). The significance of task significance: Job performance effects, relational mechanisms, and boundary conditions. Journal of Applied Psychology, 93, 108–124.Autonomy is the degree to which the person has the freedom to decide how to perform tasks. As an example, a teacher who is required to follow a predetermined textbook, cover a given list of topics, and use a specified list of classroom activities has low autonomy, whereas a teacher who is free to choose the textbook, design the course content, and use any materials she sees fit has higher levels of autonomy. Autonomy increases motivation at work, but it also has other benefits. Autonomous workers are less likely to adopt a “this is not my job” attitude and instead be proactive and creative.Morgeson, F. P., Delaney-Klinger, K., & Hemingway, M. A. (2005). The importance of job autonomy, cognitive ability, and job-related skill for predicting role breadth and job performance. Journal of Applied Psychology, 90, 399–406; Parker, S. K., Wall, T. D., & Jackson, P. R. (1997). “That's not my job”: Developing flexible employee work orientations. Academy of Management Journal, 40, 899–929; Parker, S. K., Williams, H. M., & Turner, N. (2006). Modeling the antecedents of proactive behavior at work. Journal of Applied Psychology, 91, 636–652; Zhou, J. (1998). Feedback valence, feedback style, task autonomy, and achievement orientation: Interactive effects on creative performance. Journal of Applied Psychology, 83, 261–276. Giving employees autonomy is also a great way to train them on the job. For example, Gucci’s CEO Robert Polet describes autonomy he received while working at Unilever as the key to his development of leadership talents.Gumbel, P. (2008, January 21). Galvanizing Gucci. Fortune, 157(1), 80–88.Feedback refers to the degree to which the person learns how effective he or she is at work. Feedback may come from other people such as supervisors, peers, subordinates, customers, or from the job. A salesperson who makes informational presentations to potential clients but is not informed whether they sign up has low feedback. If this salesperson receives a notification whenever someone who has heard his presentation becomes a client, feedback will be high.The mere presence of feedback is not sufficient for employees to feel motivated to perform better, however. In fact, in about one-third of the cases, feedback was detrimental to performance.Kluger, A. N., & DeNisi, A. (1996). The effects of feedback interventions on performance: A historical review, a meta-analysis, and a preliminary feedback intervention theory. Psychological Bulletin, 119, 254–284. In addition to whether feedback is present, the character of the feedback (positive or negative), whether the person is ready to receive the feedback, and the manner in which feedback was given will all determine whether employees feel motivated or demotivated as a result of feedback.Goal Setting TheoryGoal setting theory Locke, E. A., & Latham, G. P. (1990). A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice-Hall. is one of the most influential and practical theories of motivation. It has been supported in over 1,000 studies with employees, ranging from blue-collar workers to research and development employees, and there is strong evidence that setting goals is related to performance improvements.Ivancevich, J. M., & McMahon, J. T. (1982). The effects of goal setting, external feedback, and self-generated feedback on outcome variables: A field experiment. Academy of Management Journal, 25, 359–372; Latham, G. P., & Locke, E. A. (2006). Enhancing the benefits and overcoming the pitfalls of goal setting. Organizational Dynamics, 35, 332–340; Umstot, D. D., Bell, C. H., & Mitchell, T. R. (1976). Effects of job enrichment and task goals on satisfaction and productivity: Implications for job design. Journal of Applied Psychology, 61, 379–394. In fact, according to one estimate, goal setting improves performance between 10% and 25% or more.Pritchard, R. D., Roth, P. L., Jones, S. D., Galgay, P. J., & Watson, M. D. (1988). Designing a goal-setting system to enhance performance: A practical guide. Organizational Dynamics, 17, 69–78. On the basis of evidence such as this, thousands of companies around the world are using goal setting in some form, including companies such as Coca-Cola, PricewaterhouseCoopers, Nike, Intel, and Microsoft to name a few.Setting SMART GoalsThe mere presence of a goal does not motivate individuals. Think about New Year’s resolutions that you may have made and failed to keep. Maybe you decided that you should lose some weight but then never put a concrete plan in action. Maybe you decided that you would read more but didn’t. Why did you, like 97% of those who set New Year’s resolutions, fail to meet your goal?Accumulating research evidence indicates that effective goals are SMART. SMART goals are specific, measurable, achievable, realistic, and timely. Here is a sample SMART goal: Wal-Mart recently set a goal to eliminate 25% of the solid waste from its U.S. stores by the year 2009. This goal meets all the conditions of being SMART if we assume that it is an achievable goal.Heath, D., & Heath, C. (2008, February). Make goals not resolutions. Fast Company, 122, 58–59. Even though it seems like a simple concept, in reality many goals that are set within organizations may not be SMART. For example, Microsoft recently conducted an audit of its goal-setting and performance review system and found that only about 40% of the goals were specific and measurable.Shaw, K. N. (2004). Changing the goal-setting process at Microsoft. Academy of Management Executive, 18, 139–142.Why Do SMART Goals Motivate?Figure 14.17Why do SMART goals motivate?Based on information contained in Latham, G. P. (2004). The motivational benefits of goal setting. Academy of Management Executive, 18, 126–129; Seijts, G. H., & Latham, G. P. (2005). Learning versus performance goals: When should each be used? Academy of Management Executive, 19, 124–131; Shaw, K. N. (2004). Changing the goal-setting process at Microsoft. Academy of Management Executive, 18, 139–142.There are at least four reasons why goals motivate.Latham, G. P. (2004). The motivational benefits of goal-setting. Academy of Management Executive, 18, 126–129; Seijts, G. H., & Latham, G. P. (2005). Learning versus performance goals: When should each be used? Academy of Management Executive, 19, 124–131; Shaw, K. N. (2004). Changing the goal-setting process at Microsoft. Academy of Management Executive, 18, 139–142. First, goals give us direction; therefore, goals should be set carefully. Giving employees goals that are not aligned with company goals will be a problem because goals will direct employee’s energy to a certain end. Second, goals energize people and tell them not to stop until they reach that point. Third, having a goal provides a challenge. When people have goals and when they reach them, they feel a sense of accomplishment. Finally, SMART goals urge people to think outside the box and rethink how they are working. If a goal is substantially difficult, merely working harder will not get you the results. Instead, you will need to rethink the way you usually work and devise a creative way of working. It has been argued that this is how designers and engineers in Japan came up with the bullet train. Having a goal that went way beyond the current speed of trains prevented engineers from making minor improvements and urged them to come up with a radically different concept.Kerr, S., & Landauer, S. (2004). Using stretch goals to promote organizational effectiveness and personal growth: General Electric and Goldman Sachs. Academy of Management Executive, 18, 134–138.Are There Downsides to Goal Setting?As with any management technique, there may be some downsides to goal setting.Locke, E. A. (2004). Linking goals to monetary incentives. Academy of Management Executive, 18, 130–133; Pritchard, R. D., Roth, P. L., Jones, S. D., Galgay, P. J., & Watson, M. D. (1988). Designing a goal-setting system to enhance performance: A practical guide. Organizational Dynamics, 17, 69–78; Seijts, G. H., & Latham, G. P. (2005). Learning versus performance goals: When should each be used? Academy of Management Executive, 19, 124–131. First, setting goals for specific outcomes may hamper employee performance if employees lack skills and abilities to reach the goals. In these situations, setting goals for behaviors and for learning may be more effective than setting goals for outcomes. Second, goal setting may motivate employees to focus on a goal and ignore the need to respond to new challenges. For example, one study found that when teams had difficult goals and when employees within the team had high levels of performance orientation, teams had difficulty adapting to unforeseen circumstances.Lepine, J. A. (2005). Adaptation of teams in response to unforeseen change: Effects of goal difficulty and team composition in terms of cognitive ability and goal orientation. Journal of Applied Psychology, 90, 1153–1167. Third, goals focus employee attention on the activities that are measured, which may lead to sacrificing other important elements of performance. When goals are set for production numbers, quality may suffer. As a result, it is important to set goals touching on all critical aspects of performance. Finally, aggressive pursuit of goals may lead to unethical behaviors. Particularly when employees are rewarded for goal accomplishment but there are no rewards whatsoever for coming very close to reaching the goal, employees may be tempted to cheat.None of these theories are complete by themselves, but each theory provides us with a framework we can use to analyze, interpret, and manage employee behaviors in the workplace, which are important skills managers use when conducting their leading function. In fact, motivation is important throughout the entire P-O-L-C framework because most managerial functions involve accomplishing tasks and goals through others.KEY TAKEAWAYProcess-based theories use the mental processes of employees as the key to understanding employee motivation. According to equity theory, employees are demotivated when they view reward distribution as unfair. In addition to distributive justice, research identified two other types of fairness (procedural and interactional), which also affect worker reactions and motivation. According to expectancy theory, employees are motivated when they believe that their effort will lead to high performance (expectancy), that their performance will lead to outcomes (instrumentality), and that the outcomes following performance are desirable (valence). Reinforcement theory argues that behavior is a function of its consequences. By properly tying rewards to positive behaviors, eliminating rewards following negative behaviors and punishing negative behaviors, leaders can increase the frequency of desired behaviors. In job design, there are five components that increase the motivating potential of a job: Skill variety, task identity, task significance, autonomy, and feedback. These theories are particularly useful in designing reward systems within a company. Goal-setting theory is one of the most influential theories of motivation. To motivate employees, goals should be SMART (specific, measurable, achievable, realistic, and timely). Setting goals and objectives is a task managers undertake when involved in the planning portion of the P-O-L-C function.EXERCISESYour manager tells you that the best way of ensuring fairness in reward distribution is to keep the pay a secret. How would you respond to this assertion?What are the distinctions among procedural, interactional, and distributive justice? List ways in which you could increase each of these justice perceptions.Using an example from your own experience in school or at work, explain the concepts of expectancy, instrumentality, and valence.Some practitioners and researchers consider OB Mod as unethical because it may be viewed as employee manipulation. What would be your reaction to this criticism?Consider a job you held in the past. Analyze the job using the framework of job characteristics model.If a manager tells you to “sell as much as you can,” is this goal likely to be effective? Why or why not?14.4 Developing Your Personal Motivation SkillsLEARNING OBJECTIVESUnderstand what you can do to give feedback through an effective performance appraisal.Learn guidelines for proactively seeking feedback.Guidelines for Giving Feedback in a Performance Appraisal MeetingMake employee appraisals more productive. (2007. September). HR Focus, 84(9), 1, 11–15; Ryan, L. (2007, January 1). Coping with performance-review anxiety. Business Week Online, p. 6; Stone, D. L. (1984). The effects of feedback sequence and expertise of the rater on perceived feedback accuracy. Personnel Psychology, 37, 487–506; Sulkowicz, K. (2007, September 10). Straight talk at review time. Business Week, 16.Before the meeting, ask the person to complete a self-appraisal. This is a great way of making sure that employees become active participants in the process and are heard. Complete the performance appraisal form and document your rating using several examples. Be sure that your review covers the entire time since the last review, not just recent events. Handle the logistics. Be sure that you devote sufficient time to each meeting. If you schedule them tightly back to back, you may lose your energy in later meetings. Be sure that the physical location is conducive to a private conversation.During the meeting, be sure to recognize effective performance through specific praise. Do not start the meeting with a criticism. Starting with positive instances of performance helps establish a better mood and shows that you recognize what the employee is doing right. Give employees opportunities to talk. Ask them about their greatest accomplishments, as well as opportunities for improvement. Show empathy and support. Remember: your job as a manager is to help the person solve performance problems. Identify areas where you can help. Conclude by setting goals and creating an action plan for the future.After the meeting, continue to give the employee periodic and frequent feedback. Follow through on the goals that were set.Five Guidelines for Seeking FeedbackAdapted from ideas in Jackman, J. M., & Strober, M. H. (2003, April). Fear of feedback. Harvard Business Review, 81(4), 101–107; Wing, L., Xu, H., & Snape, E. (2007). Feedback-seeking behavior and leader-member exchange: Do supervisor-attributed motives matter? Academy of Management Journal, 50, 348–363; Lee, H. E., Park, H. S., Lee, T. S., & Lee, D. W. (2007). Relationships between LMX and subordinates’ feedback-seeking behaviors. Social Behavior & Personality: An International Journal, 35, 659–674.Research shows that receiving feedback is a key to performing well. If you are not receiving enough feedback on the job, it is better to seek it instead of trying to guess how well you are doing.Consider seeking regular feedback from your boss. This also has the added benefit of signaling to the manager that you care about your performance and want to be successful.Be genuine in your desire to learn. When seeking feedback, your aim should be improving yourself as opposed to creating the impression that you are a motivated employee. If your manager thinks that you are managing impressions rather than genuinely trying to improve your performance, feedback seeking may hurt you.Develop a good relationship with your manager as well as the employees you manage. This would have the benefit of giving you more feedback in the first place. It also has the upside of making it easier to ask direct questions about your own performance.Consider finding trustworthy peers who can share information with you regarding your performance. Your manager is not the only helpful source of feedback.Be gracious when you receive unfavorable feedback. If you go on the defensive, there may not be a next time. Remember, even if it may not feel like it sometimes, feedback is a gift. You can improve your performance by using feedback constructively. Consider that the negative feedback giver probably risked your goodwill by being honest. Unless there are factual mistakes in the feedback, do not try to convince the person that the feedback is inaccurate.KEY TAKEAWAYGiving effective feedback is a key part of a manager’s job. To do so, plan the delivery of feedback before, during, and after the meeting. In addition, there are a number of ways to learn about your own performance. Take the time to seek feedback and act on it. With this information, you can do key things to maximize your success and the success of those you manage.EXERCISESWhy can discussing performance feedback with employees be so hard?What barriers do you perceive in asking for feedback?How would you react if one of your employees came to you for feedback?Imagine that your good friend is starting a new job next week. What recommendations would you give to help your friend do a great job seeking feedback?

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Published - Fri, 10 Mar 2023

Managing Groups and Teams - Principles of Management - Chapter 13

Created by - Jenny Clarke

Managing Groups and Teams - Principles of Management - Chapter 13

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Recognize and understand group dynamics and development.Understand the difference between groups and teams.Understand how to organize effective teams.Recognize and address common barriers to team effectiveness.Build and maintain cohesive teams.Figure 13.2 The P-O-L-C FrameworkGroups and teams are ubiquitous on the organizational landscape and managers will find that team management skills are required within each of the planning-organizing-leading-controlling (P-O-L-C) functions. For instance, planning may often occur in teams, particularly in less centralized organizations or toward the higher levels of the firm. When making decisions about the structure of the firm and individual jobs, managers conducting their organizing function must determine how teams will be used within the organization. Teams and groups have implications for the controlling function because teams require different performance assessments and rewards. Finally, teams and groups are a facet of the leading function. Today’s managers must be both good team members and good team leaders. Managing groups and teams is a key component of leadership.In your personal life, you probably already belong to various groups such as the group of students in your management class; you may also belong to teams, such as an athletic team or a musical ensemble. In your career, you will undoubtedly be called on to be part of, and mostly likely to manage, groups and teams.13.1 Case in Point: General Electric Allows Teamwork to Take FlightIn Durham, North Carolina, Robert Henderson was opening a factory for General Electric Company (NYSE: GE). The goal of the factory was to manufacture the largest commercial jet engine in the world. Henderson’s opportunity was great and so were his challenges. GE hadn’t designed a jet engine from the ground up for over 2 decades. Developing the jet engine project had already cost GE $1.5 billion. That was a huge sum of money to invest—and an unacceptable sum to lose should things go wrong in the manufacturing stage.How could one person fulfill such a vital corporate mission? The answer, Henderson decided, was that one person couldn’t fulfill the mission. Even Jack Welch, GE’s CEO at the time, said, “We now know where productivity comes from. It comes from challenged, empowered, excited, rewarded teams of people.”Empowering factory workers to contribute to GE’s success sounded great in theory. But how to accomplish these goals in real life was a more challenging question. Factory floors, traditionally, are unempowered workplaces where workers are more like cogs in a vast machine than self-determining team members.In the name of teamwork and profitability, Henderson traveled to other factories looking for places where worker autonomy was high. He implemented his favorite ideas at the factory at Durham. Instead of hiring generic “mechanics,” for example, Henderson hired staffers with FAA (Federal Aviation Administration) mechanic’s licenses. This superior training created a team capable of making vital decisions with minimal oversight, a fact that upped the factory’s output and his workers’ feelings of worth.Henderson’s “self-managing” factory functioned beautifully. And it looked different, too. Plant manager Jack Fish described Henderson’s radical factory, saying Henderson “didn’t want to see supervisors, he didn’t want to see forklifts running all over the place, he didn’t even want it to look traditional. There’s clutter in most plants, racks of parts and so on. He didn’t want that.”Henderson also contracted out non-job-related chores, such as bathroom cleaning, that might have been assigned to workers in traditional factories. His insistence that his workers should contribute their highest talents to the team showed how much he valued them. And his team valued their jobs in turn.Six years later, a Fast Company reporter visiting the plant noted, “GE/Durham team members take such pride in the engines they make that they routinely take brooms in hand to sweep out the beds of the 18-wheelers that transport those engines—just to make sure that no damage occurs in transit.” For his part, Henderson, who remained at GE beyond the project, noted, “I was just constantly amazed by what was accomplished there.”GE’s bottom line showed the benefits of teamwork, too. From the early 1980s, when Welch became CEO, until 2000, when he retired, GE generated more wealth than any organization in the history of the world.Case written by [citation redacted per publisher request]. Based on information from Fishman, C. (1999, September). How teamwork took flight. Fast Company. Retrieved August 1, 2008, from http://www.fastcompany.com/node/38322/print; Lear, R. (1998, July–August). Jack Welch speaks: Wisdom from the world’s greatest business leader. Chief Executive; Guttman, H. (2008, January–February). Leading high-performance teams: Horizontal, high-performance teams with real decision-making clout and accountability for results can transform a company. Chief Executive, pp. 231–233.DISCUSSION QUESTIONSTeams are an essential part of the leading facet of the P-O-L-C framework. Looking at the team role typology, how might you categorize the roles played by the teams in this case?What do you think brought individuals at GE together to work as a cohesive team?In the case of GE, do you view the team members or the management leaders as the most important part of the story?How do you think Henderson held his team members accountable for their actions?Do you think that GE offered a support system for its employees in order to create this type of team cohesion? If so, how might this have been accomplished?What are the benefits of creating a team whose members are educated to make vital decisions with minimal oversight, as GE did in hiring staffers with FAA mechanic’s licenses?13.2 Group DynamicsLEARNING OBJECTIVESUnderstand the difference between informal and formal groups.Learn the stages of group development.Identify examples of the punctuated equilibrium model.Learn how group cohesion, social loafing, and collective efficacy can affect groups.Because many tasks in today’s world have become so complex, groups and teams have become an essential component of an organization’s success. The success of the group depends on the successful management of its members and making sure all aspects of work are fair for each member. Being able to work in a group is a key skill for managers and employees alike.Types of Groups: Formal and InformalWhat is a group? A group is a collection of individuals who interact with each other such that one person’s actions have an impact on the others. In organizations, most work is done within groups, and managing groups is key to each of the P-O-L-C functions. How groups function has important implications for organizational productivity. Groups where people get along, feel the desire to contribute, and are capable of coordinating their efforts may have high performance levels, whereas those characterized by extreme levels of conflict or hostility may demoralize members of the workforce.In organizations, groups can be classified into two basic types: informal and formal. Informal work groups are made up of two or more individuals who are associated with one another in ways not prescribed by the formal organization. For example, a few people in the company who get together to play tennis on the weekend would be considered an informal group. A formal work group is made up of managers, subordinates, or both with close associations among group members that influence the behavior of individuals in the group. We will discuss many different types of formal work groups later on in this chapter.Stages of Group DevelopmentAmerican organizational psychologist Bruce Tuckman presented a robust model in 1965 that is still widely used today. On the basis of his observations of group behavior in a variety of settings, he proposed a four-stage map of group evolution, known as the Forming-Storming-Norming-Performing Model.Tuckman, B. (1965). Developmental sequence in small groups. Psychological Bulletin, 63, 384–399. Later he enhanced the model by adding a fifth and final stage, adjourning. The phases are illustrated in the Stages of the Group Development Model. Interestingly enough, just as an individual moves through developmental stages such as childhood, adolescence, and adulthood, so does a group, although in a much shorter period of time.According to this theory, to facilitate a group successfully, the leader needs to move through various leadership styles over time. Generally, this is accomplished by first being more direct, eventually serving as a coach, and later, once the group is able to assume more power and responsibility for itself, shifting to delegator.While research has not confirmed that this is descriptive of how groups progress, knowing and following these steps can help groups be more effective. For example, groups that do not go through the storming phase early on will often return to this stage toward the end of the group process to address unresolved issues. Another example of the validity of the group development model involves groups that take the time to get to know each other socially in the forming stage. When this socialization occurs, groups tend to handle future challenges better because the individuals have an understanding of each other’s needs.Figure 13.4 Stages of the Group Development ModelFormingIn the Forming stage, the group comes together for the first time. The members may already know each other or they may be total strangers. In either case, there is a level of formality, some anxiety, and a degree of guardedness as group members are not sure what is going to happen next. “Will I be accepted? What will my role be? Who has the power here?” These are some of the questions participants think about during this stage of group formation. Because of the large amount of uncertainty, members tend to be polite, conflict avoidant, and observant. They are trying to figure out the “rules of the game” without being too vulnerable. At this point, they may also be quite excited and optimistic about the task, perhaps experiencing a level of pride at being chosen to join a particular group.Group members are trying to achieve several goals at this stage, although this may not necessarily be done consciously. First, they are trying to get to know one another. Often this can be accomplished by finding some common ground. Members also begin to explore group boundaries to determine what will be considered acceptable behavior. “Can I interrupt? Can I leave when I feel like it?” This trial phase may also involve testing the appointed leader or seeing whether a leader emerges from the group. At this point, group members are also discovering how the group will work in terms of what needs to be done and who will be responsible for each task. This stage is often characterized by abstract discussions about issues to be addressed by the group; those who like to get moving can become impatient with this part of the process. This phase is usually short in duration, perhaps a meeting or two.StormingOnce group members feel sufficiently safe and included, they tend to enter the Storming phase. Participants focus less on keeping their guard up as they shed social facades, becoming more authentic and more argumentative. Group members begin to explore their power and influence, and they often stake out their territory by differentiating themselves from the other group members rather than seeking common ground. Discussions can become heated as participants raise conflicting points of view and values, or disagree over how tasks should be done and who is assigned to them. It is not unusual for group members to become defensive, competitive, or jealous. They may take sides or begin to form cliques within the group. Questioning and resisting direction from the leader is also quite common. “Why should I have to do this? Who designed this project in the first place? What gives you the authority to tell me what to do?”Although little seems to get accomplished at this stage, it actually serves an important purpose: group members are becoming more authentic as they express their deeper thoughts and feelings. What they are really exploring is “Can I truly be me, have power, and be accepted?” During this chaotic stage, a great deal of creative energy that was previously buried is released and available for use, but it takes skill to move the group from Storming to Norming. In many cases, the group gets stuck in the Storming phase.Once group members discover that they can be authentic and that the group is capable of handling differences without dissolving, they are ready to enter the next stage, Norming.Norming“We survived!” is the common sentiment as this stage. Group members often feel elated at this point, and they are much more committed to each other and the group’s goal. Feeling energized by knowing they can handle the “tough stuff,” group members are now ready to get to work. Finding themselves more cohesive and cooperative, participants find it easy to establish their own ground rules (or norms) and define their operating procedures and goals. The group tends to make big decisions, while subgroups or individuals handle the smaller decisions. It is hoped at this point the group members are more open and respectful toward each other and willing to ask one another for both help and feedback. They may even begin to form friendships and share more personal information.At this point, the leader should become more of a facilitator by stepping back and letting the group assume more responsibility for its goal. Since the group’s energy is running high, this is an ideal time to host a social or team-building event.PerformingGalvanized by a sense of shared vision and a feeling of unity, the group is ready to go into high gear. Members are more interdependent, individuality and differences are respected, and group members feel themselves to be part of a greater entity. At the Performing stage, participants are not only getting the work done, but they also pay greater attention to how they are doing it. They ask such questions as, “Do our operating procedures best support productivity and quality assurance? Do we have suitable means for addressing differences that arise so we can preempt destructive conflicts? Are we relating to and communicating with each other in ways that enhance group dynamics and help us achieve our goals? How can I further develop as a person to become more effective?” By now, the group has matured, becoming more competent, autonomous, and insightful.Group leaders can finally move into coaching roles and help members grow in skill and leadership. These leadership shifts are essential for managers enacting the Leadership function to keep in mind. In fact, a manager who leads multiple teams may find it necessary to shift leadership styles not only over time but between teams at different stages.AdjourningJust as groups form, so do they end. For example, many groups or teams formed in a business context are project-oriented and therefore are temporary. Alternatively, a working group may dissolve because of an organizational restructuring. As with graduating from school or leaving home for the first time, these endings can be bittersweet, with group members feeling a combination of victory, grief, and insecurity about what is coming next. For those who like routine and bond closely with fellow group members, this transition can be particularly challenging. Group leaders and members alike should be sensitive to handling these endings respectfully and compassionately. An ideal way to close a group is to set aside time to debrief (“How did it all go? What did we learn?”), acknowledge one another, and celebrate a job well done.The Punctuated-Equilibrium ModelAs you may have noted, the five-stage model we have just reviewed is a linear process. According to the model, a group progresses to the Performing stage, at which point it finds itself in an ongoing, smooth-sailing situation until the group dissolves. In reality, subsequent researchers, most notably Joy H. Karriker, have found that the life of a group is much more dynamic and cyclical in nature.Karriker, J. H. (2005). Cyclical group development and interaction-based leadership emergence in autonomous teams: an integrated model. Journal of Leadership & Organizational Studies, 11(4), 54–64. For example, a group may operate in the Performing stage for several months. Then, because of a disruption, such as a competing emerging technology that changes the rules of the game or the introduction of a new CEO, the group may move back into the Storming phase before returning to Performing. Ideally, any regression in the linear group progression will ultimately result in a higher level of functioning. Proponents of this cyclical model draw from behavioral scientist Connie Gersick’s study of punctuated equilibrium.Gersick, C. J. G. (1991). Revolutionary change theories: A multilevel exploration of the punctuated equilibrium paradigm. Academy of Management Review, 16(1), 10–36.The concept of punctuated equilibrium was first proposed in 1972 by paleontologists Niles Eldredge and Stephen Jay Gould, who both believed that evolution occurred in rapid, radical spurts rather than gradually over time. Identifying numerous examples of this pattern in social behavior, Gersick found that the concept applied to organizational change. She proposed that groups remain fairly static, maintaining a certain equilibrium for long periods. Change during these periods is incremental, largely due to the resistance to change that arises when systems take root and processes become institutionalized. In this model, revolutionary change occurs in brief, punctuated bursts, generally catalyzed by a crisis or a problem that breaks through the systemic inertia and shakes up the deep organizational structures in place. At this point, the organization or group has the opportunity to learn and create new structures that are better aligned with current realities. Whether the group does this is not guaranteed. In sum, in Gersick’s model, groups can repeatedly cycle through the Storming and Performing stages, with revolutionary change taking place during short transitional windows. For organizations and groups who understand that disruption, conflict, and chaos are inevitable in the life of a social system, these disruptions represent opportunities for innovation and creativity.Figure 13.5 The Punctuated Equilibrium ModelCohesion, Social Loafing, and Collective EfficacyCohesion can be thought of as a kind of social glue. It refers to the degree of camaraderie within the group. Cohesive groups are those in which members are attached to each other and act as one unit. The more cohesive a group, the more productive it will be and the more rewarding the experience will be for the group’s members.Beal, D. J., Cohen, R. R., Burke, M. J., & McLendon, C. L. (2003). Cohesion and performance in groups: A meta-analytic clarification of construct relations. Journal of Applied Psychology, 88, 989–1004; Evans, C. R., & Dion, K. L. (1991). Group cohesion and performance: A meta-analysis. Small Group Research, 22, 175–186. Cohesive groups tend to have the following characteristics: they have a collective identity; they experience a moral bond and a desire to remain part of the group; they share a sense of purpose, working together on a meaningful task or cause; and they establish a structured pattern of communication.The fundamental factors affecting group cohesion include the following:Similarity. The more similar group members are in terms of age, sex, education, skills, attitudes, values, and beliefs, the more likely the group will bond.Stability. The longer a group stays together, the more cohesive it becomes.Size. Smaller groups tend to have higher levels of cohesion.Support. When group members receive coaching and are encouraged to support their fellow team members, group identity strengthens.Satisfaction. Cohesion is correlated with how pleased group members are with one another’s performance, behavior, and conformity to group norms.As you might imagine, there are many benefits in creating a cohesive group. Members are generally more personally satisfied and feel greater self-confidence and self-esteem in a group where they feel they belong. For many, membership in such a group can be a buffer against stress, which can improve mental and physical well-being. Because members are invested in the group and its work, they are more likely to regularly attend and actively participate in the group, taking more responsibility for the group’s functioning. In addition, members can draw on the strength of the group to persevere through challenging situations that might otherwise be too hard to tackle alone.Can a Group Have Too Much Cohesion?Despite the advantages of cohesion, too much cohesion can be detrimental to a group. Because members can come to value belonging over all else, an internal pressure to conform may arise where some members modify their behavior to adhere to group norms. Members may become conflict avoidant, focusing on trying to please one another so as not to be ostracized. In some cases, members might censor themselves to maintain the party line. As such, the group is dominated by a superficial sense of harmony and discourages diversity of thought. Having less tolerance for deviants, who threaten the group’s static identity, cohesive groups will often disapprove of members who dare to disagree. Members attempting to make a change may be criticized, undermined, or even ostracized by other members, who perceive their attempts as a threat to the status quo. The painful possibility of being marginalized can keep many members in line with the majority.The more strongly members identify with the group, the easier it is to see outsiders as inferior or, in extreme cases, as enemies. It is easy to see how this can lead to increased insularity. This form of prejudice can have a downward spiral effect. The group is not getting corrective feedback from within its own confines, and it is closing itself off from input and a cross-fertilization of ideas from the outside. In such an environment, groups can easily adopt extreme ideas that will not be challenged. Denial increases as problems are ignored and failures are blamed on external factors. With limited, often biased, information and no internal or external opposition, groups like these can make disastrous decisions.Groupthink is a group pressure phenomenon that increases the risk of the group making flawed decisions by allowing reductions in mental efficiency, reality testing, and moral judgment. A famous example of groupthink is the decision to invade Cuba made by President John F. Kennedy and his cabinet in 1961. In a matter of days, Cuban forces repelled the invaders, whose objective was to overthrow the entire Cuban government, resulting in many casualties and captured troops. In retrospect, there were many reasons why the Bay of Pigs invasion was doomed from the start, but the planning and approval were characterized by a belief that the insiders knew best and did not need to consider “devil’s advocate” points of view. As this example illustrates, groupthink is a serious risk in highly cohesive groups.Janis, I. L. (1972). Victims of groupthink. New York: Houghton Mifflin.Cohesive groups can go awry in much milder ways. For example, group members can value their social interactions so much that they have fun together but spend little time on accomplishing their assigned task. Or a group’s goal may begin to diverge from the larger organization’s goal and those trying to uphold the organization’s goal may be criticized (for example, students may tease the class “brain” for doing well in school).In addition, research shows that cohesion leads to acceptance of group norms.Goodman, P. S., Ravlin, E., & Schminke, M. (1987). Understanding groups in organizations. Research in Organizational Behavior, 9, 121–173. Groups with high task commitment tend to do well, but suppose you belong to a group in which the norms are to work as little as possible! As you might imagine, these groups accomplish little and can actually work together against the organization’s goals.Figure 13.6Groups with high cohesion and high task commitment tend to be the most effective.Social LoafingSocial loafing refers to the tendency of individuals to put in less effort when working in a group context. This phenomenon, also known as the Ringelmann effect, was first noted by French agricultural engineer Max Ringelmann in 1913. In one study, he had people pull on a rope individually and in groups. He found that as the number of people pulling increased, the group’s total pulling force was less than the sum of individual efforts had been when measured alone.Karau, S. J., & Williams, K. D. (1993). Social loafing: A meta-analytic review and theoretical integration. Journal of Personality and Social Psychology, 65, 681–706.Why do people work less hard when they are working with other people? Observations show that as the size of the group grows, this effect becomes larger as well.Karau, S. J., & Williams, K. D. (1993). Social loafing: A meta-analytic review and theoretical integration. Journal of Personality and Social Psychology, 65, 681–706. The social loafing tendency is not so much a matter of laziness as a matter of perceiving that one will receive neither one’s fair share of rewards if the group is successful nor blame if the group fails. Rationales for this behavior include, “My own effort will have little effect on the outcome.” “Others aren’t pulling their weight, so why should I?” Or “I don’t have much to contribute, and no one will notice anyway.” This is a consistent effect across a great number of group tasks and countries.Gabrenya, W. L., Latane, B., & Wang, Y. (1983). Social loafing in cross-cultural perspective. Journal of Cross-Cultural Perspective, 14, 368–384; Harkins, S., & Petty, R. E. (1982). Effects of task difficulty and task uniqueness on social loafing. Journal of Personality and Social Psychology, 43, 1214–1229; Taylor, D. W., & Faust, W. L. (1952). Twenty questions: Efficiency of problem-solving as a function of the size of the group. Journal of Experimental Psychology, 44, 360–363; Ziller, R. C. (1957). Four techniques of group decision-making under uncertainty. Journal of Applied Psychology, 41, 384–388. Research also shows that perceptions of fairness are related to less social loafing.Price, K. H., Harrison, D. A., & Gavin, J. H. (2006). Withholding inputs in team contexts: Member composition, interaction processes, evaluation structure, and social loafing. Journal of Applied Psychology, 91, 1375–1384. Therefore, teams that are deemed as more fair should also see less social loafing.Collective EfficacyCollective efficacy refers to a group’s perception of its ability to successfully perform well.Bandura, A. (1997). Self-efficacy: The exercise of control. San Francisco: Jossey-Bass. A group with high collective efficacy is one whose members share a belief in the group’s capability to pursue its agreed-upon course of action and attain its goals. Collective efficacy is influenced by a number of factors, including watching others (“that group did it and we’re better than them”), verbal persuasion (“we can do this”), and how a person feels (“this is a good group”). Research shows that a group’s collective efficacy is positively related to its performance.Gully, S. M., Incalcaterra, K. A., Joshi, A., & Beaubien, J. M. (2002). A meta-analysis of team-efficacy, potency, and performance: Interdependence and level of analysis as moderators of observed relationships. Journal of Applied Psychology, 87, 819–832; Porter, C. O. L. H (2005). Goal orientation: Effects on backing up behavior, performance, efficacy, and commitment in teams. Journal of Applied Psychology, 90, 811–818; Tasa, K., Taggar, S., & Seijts, G. H. (2007). The development of collective efficacy in teams: A multilevel and longitudinal perspective. Journal of Applied Psychology, 92, 17–27. In addition, this relationship is stronger when task interdependence (the degree an individual’s task is linked to someone else’s work) is high rather than low.KEY TAKEAWAYGroups may be either formal or informal. Groups go through developmental stages much like individuals do. The Forming-Storming-Norming-Performing-Adjourning Model is useful in prescribing stages that groups should pay attention to as they develop. The punctuated-equilibrium model of group development argues that groups often move forward during bursts of change after long periods without change. Groups that are similar, stable, small, supportive, and satisfied tend to be more cohesive than groups that are not. Cohesion can help support group performance if the group values task completion, but too much cohesion can also be a concern for groups. Social loafing increases as groups become larger. When collective efficacy is high, groups tend to perform better.EXERCISESHow do the tactics related to group dynamics involve the managerial functions outlined by the P-O-L-C framework?If you believe the punctuated-equilibrium model is true about groups, how can you use this knowledge to help your own group?Think about the most cohesive group you have ever been in. How did it compare to less cohesive groups in terms of similarity, stability, size, support, and satisfaction?Why do you think social loafing occurs within groups? What can be done to combat it?Have you seen instances of collective efficacy helping or hurting a team? Please explain your answer.13.3 Understanding Team Design CharacteristicsLEARNING OBJECTIVESUnderstand the difference between groups and teams.Understand the factors leading to the rise in the use of teams.Understand how tasks and roles affect teams.Identify different types of teams.Identify team design considerations.Effective teams give companies a significant competitive advantage. In a high-functioning team, the sum is truly greater than the parts. Team members not only benefit from one another’s diverse experiences and perspectives but also stimulate each other’s creativity. Plus, for many people, working in a team can be more fun than working alone. Let’s take a closer look at what a team is, the different team characteristics, types of teams companies use, and how to design effective teams.Differences Between Groups and TeamsOrganizations consist of groups of people. What exactly is the difference between a group and a team? A group is a collection of individuals. Within an organization, groups might consist of project-related groups such as a product group or division or they can encompass an entire store or branch of a company. The performance of a group consists of the inputs of the group minus any process losses such as the quality of a product, ramp-up time to production, or the sales for a given month. Process loss is any aspect of group interaction that inhibits group functioning.Why do we say group instead of team? A collection of people is not a team, though they may learn to function in that way. A team is a particular type of group: a cohesive coalition of people working together to achieve mutual goals. Being on a team does not equate to a total suppression of personal agendas, but it does require a commitment to the vision and involves each individual working toward accomplishing the team’s objective. Teams differ from other types of groups in that members are focused on a joint goal or product, such as a presentation, discussing a topic, writing a report, creating a new design or prototype, or winning a team Olympic medal. Moreover, teams also tend to be defined by their relatively smaller size. For instance, according to one definition, “A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they are mutually accountable.”Katzenbach, J. R., & Smith, D. K. (1993). The wisdom of teams: Creating the high-performance organization. Boston: Harvard Business School.Figure 13.7Teams are only as good as their weakest link. While Michael Phelps has been dubbed “the world’s greatest swimmer” and received a great deal of personal attention, such as meeting President George W. Bush, he could not have achieved his record eight gold medals in one Olympic games without the help of his teammates Aaron Peirsol, Brendan Hansen, and Jason Lezak.Source: http://simple.wikipedia.org/wiki/Image:Michael_Phelps_with_President _Bush_-_20080811.jpegThe purpose of assembling a team is to accomplish larger, more complex goals than what would be possible for an individual working alone or even the simple sum of several individuals working independently. Teamwork is also needed in cases where multiple skills are tapped or where buy-in is required from several individuals. Teams can, but do not always, provide improved performance. Working together to further a team agenda seems to increase mutual cooperation between what are often competing factions. The aim and purpose of a team is to perform, get results, and achieve victory in the workplace. The best managers are those who can gather together a group of individuals and mold them into an effective team.The key properties of a true team include collaborative action where, along with a common goal, teams have collaborative tasks. Conversely, in a group, individuals are responsible only for their own area. They also share the rewards of strong team performance with their compensation based on shared outcomes. Compensation of individuals must be based primarily on a shared outcome, not individual performance. Members are also willing to sacrifice for the common good in which individuals give up scarce resources for the common good instead of competing for those resources. For example, teams occur in sports such as soccer and basketball, in which the individuals actively help each other, forgo their own chance to score by passing the ball, and win or lose collectively as a team.Teams in OrganizationsThe early 1990s saw a dramatic rise in the use of teams within organizations, along with dramatic results such as the Miller Brewing Company increasing productivity 30% in the plants that used self-directed teams compared with those that used the traditional organization. This same method allowed Texas Instruments in Malaysia to reduce defects from 100 parts per million to 20 parts per million. In addition, Westinghouse reduced its cycle time from 12 weeks to 2 weeks, and Harris Electronics was able to achieve an 18% reduction in costs.Welins, R., Byham, W., & Dixon, G. (1994). Inside Teams. San Francisco: Jossey-Bass. The team method has served countless companies over the years through both quantifiable improvements and more subtle individual worker-related benefits.Companies such as Square D, a maker of circuit breakers, switched to self-directed teams and found that overtime on machines like the punch press dropped 70% under teams. Productivity increased because the setup operators were able to manipulate the work in much more effective ways than a supervisor could dictate.Moskal, B. (1988, June 20). Supervisors, begone! Industry Week, p. 32. In 2001, clothing retailer Chico’s FAS was looking to grow its business. The company hired Scott Edmonds as president, and two years later revenues had almost doubled from $378 million to $760 million. By 2006, revenues were $1.6 billion, and Chico’s had nine years of double-digit same-store sales growth. What did Edmonds do to get these results? He created a horizontal organization “ruled by high-performance teams with real decision-making clout and accountability for results, rather than by committees that pass decisions up to the next level or toss them over the wall into the nearest silo.”The use of teams also began to increase because advances in technology have resulted in more complex systems that require contributions from multiple people across the organization. Overall, team-based organizations have more motivation and involvement, and teams can often accomplish more than individuals.Cannon-Bowers, J. A. and Salas, E. (2001, February). Team effectiveness and competencies. In W. Karwowski (Ed.), International encyclopedia of ergonomics and human factors (1383). London: CRC Press. It is no wonder organizations are relying on teams more and more.Do We Need a Team?Teams are not a cure-all for organizations. To determine whether a team is needed, organizations should consider whether a variety of knowledge, skills, and abilities are needed, whether ideas and feedback are needed from different groups within the organization, how interdependent the tasks are, if wide cooperation is needed to get things done, and whether the organization would benefit from shared goals.Rees, F. (1997). Teamwork from start to finish. San Francisco: Jossey-Bass. If the answer to these questions is “yes,” then a team or teams might make sense. For example, research shows that the more team members perceive that outcomes are interdependent, the better they share information and the better they perform.De Dreu, C. K. W. (2007). Cooperative outcome interdependence, task reflexivity, and team effectiveness: A motivated information processing perspective. Journal of Applied Psychology, 92, 628–638.Team Tasks and RolesTeams differ in terms of the tasks they are trying to accomplish and the roles team members play.As early as the 1970s, J. R. Hackman identified three major classes of tasks: (1) production tasks, (2) idea generation tasks, and (3) problem-solving tasks.Hackman, J. R. (1976). Group influences on individuals. In M. D. Dunnette (Ed.), Handbook of industrial and organizational psychology. Chicago: Rand-McNally. Production tasks include actually making something, such as a building, a product, or a marketing plan. Idea generation tasks deal with creative tasks, such as brainstorming a new direction or creating a new process. Problem-solving tasks refer to coming up with plans for actions and making decisions, both facets of managerial P-O-L-C functions (planning and leading). For example, a team may be charged with coming up with a new marketing slogan, which is an idea generation task, while another team might be asked to manage an entire line of products, including making decisions about products to produce, managing the production of the product lines, marketing them, and staffing their division. The second team has all three types of tasks to accomplish at different points in time.Task InterdependenceAnother key to understanding how tasks are related to teams is to understand their level of task interdependence. Task interdependence refers to the degree that team members depend on one another to get information, support, or materials from other team members to be effective. Research shows that self-managing teams are most effective when their tasks are highly interdependent.Langfred, C. W. (2005). Autonomy and performance in teams: The multilevel moderating effect of task interdependence. Journal of Management, 31, 513–529; Liden, R. C., Wayne, S. J., & Bradway, L. K. (1997). Task interdependence as a moderator of the relation between group control and performance. Human Relations, 50, 169–181.There are three types of task interdependence. Pooled interdependence exists when team members may work independently and simply combine their efforts to create the team’s output. For example, when students meet to divide the sections of a research paper and one person simply puts all the sections together to create one paper, the team is using the pooled interdependence model. However, they might decide that it makes more sense to start with one person writing the introduction of their research paper, then the second person reads what was written by the first person and, drawing from this section, writes about the findings within the paper. Using the findings section, the third person writes the conclusions. If one person’s output becomes another person’s input, the team would be experiencing sequential interdependence. And finally, if the student team decided that in order to create a top notch research paper they should work together on each phase of the research paper so that their best ideas would be captured at each stage, they would be undertaking reciprocal interdependence. Another important type of interdependence that is not specific to the task itself is outcome interdependence, where the rewards that an individual receives depend on the performance of others.Team RolesWhile relatively little research has been conducted on team roles, recent studies show that individuals who are more aware of team roles and the behavior required for each role perform better than individuals that do not. This fact remains true for both student project teams as well as work teams, even after accounting for intelligence and personality.Mumford, T. V., Van Iddekinge, C. H., Morgeson, F. P., & Campion, M. A. (2008). The team role test: Development and validation of a team role knowledge situational judgment test. Journal of Applied Psychology, 93, 250–267. Early research found that teams tend to have two categories of roles: those related to the tasks at hand and those related to the team’s functioning. For example, teams that only focus on production at all costs may be successful in the short run, but if they pay no attention to how team members feel about working 70 hours a week, they are likely to experience high turnover.On the basis of decades of research on teams, 10 key roles have been identified.Bales, R. F. (1950). Interaction process analysis: A method for the study of small groups. Cambridge, MA: Addison-Wesley; Benne, K. D., & Sheats, P. (1948). Functional roles of group members. Journal of Social Issues, 4, 41–49; Belbin, R. M. (1993). Management teams: Why they succeed or fail. Oxford: Butterworth-Heinemann. Team leadership is effective when leaders are able to adapt the roles they are contributing to or asking others to contribute to fit what the team needs, given its stage and the tasks at hand.Kozlowski, S. W. J., Gully, S. M., McHugh, P. P., Salas, E., & Cannon-Bowers, J. A. (1996). A dynamic theory of leadership and team effectiveness: Developmental and task contingent roles. In G. Ferris (Ed.), Research in personnel and human resource management (Vol. 14, pp. 253–305). Greenwich, CT: JAI Press; Kozlowski, S. W. J., Gully, S. M., Salas, E., & Cannon-Bowers, J. A. (1996). Team leadership and development: Theory, principles, and guidelines for training leaders and teams. In M. M. Beyerlein, D. A. Johnson, & S. T. Beyerlein (Eds.), Advances in interdisciplinary studies of work teams (Vol. 3, pp. 253–291). Greenwich, CT: JAI Press. Ineffective leaders might always engage in the same task role behaviors when what they really need to do is focus on social roles, put disagreements aside, and get back to work. While these behaviors can be effective from time to time, if the team doesn’t modify its role behaviors as things change, they most likely will not be effective.Figure 13.9Teams are based on many roles being carried out as summarized by the Team Role Typology. These 10 roles include task roles (green), social roles (yellow), and boundary spanning roles (orange).Source: Mumford, T. V., Van Iddekinge, C. H., Morgeson, F. P., & Campion, M. A. (2008). The team role test: Development and validation of a team role knowledge situational judgment test. Journal of Applied Psychology, 93, 250–267; Mumford, T. V., Campion, M. A., & Morgeson, F. P. (2006). Situational judgments in work teams: A team role typology. In J. A. Weekley & R. E. Ployhart (Eds.), Situational judgment tests: Theory, measurement (pp. 319–343). Mahwah, NJ: Lawrence Erlbaum.Task RolesFive roles make up the task portion of the role typology. The contractor role includes behaviors that serve to organize the team’s work, including creating team time lines, production schedules, and task sequencing. The creator role deals more with changes in the team’s task process structure. For example, reframing the team goals and looking at the context of goals would fall under this role. The contributor role is important because it brings information and expertise to the team. This role is characterized by sharing knowledge and training those who have less expertise to strengthen the team. Research shows that teams with highly intelligent members and evenly distributed workloads are more effective than those with uneven workloads.Ellis, A. P. J., Hollenbeck, J. R., Ilgen, D. R., Porter, C. O. L. H., West, B. J., & Moon, H. (2003). Team learning: Collectively connecting the dots. Journal of Applied Psychology, 88, 821–835. The completer role is also important as it is often where ideas are transformed into action. Behaviors associated with this role include following up on tasks such as gathering needed background information or summarizing the team’s ideas into reports. Finally, the critic role includes “devil’s advocate” behaviors which go against the assumptions being made by the team.Social RolesSocial roles serve to keep the team operating effectively. When the social roles are filled, team members feel more cohesive and the group is less prone to suffer process losses or biases, such as social loafing, groupthink, or a lack of participation from all members. Three roles fall under the umbrella of social roles. The cooperator role includes supporting those with expertise toward the team’s goals. This is a proactive role. The communicator role includes behaviors that are targeted at collaboration such as practicing good listening skills and appropriately using humor to diffuse tense situations. Having a good communicator helps the team to feel more open to sharing ideas. And the calibrator role is an important one and serves to keep the team on track in terms of suggesting any needed changes to the team’s process. This role includes initiating discussions about potential team problems such as power struggles or other tensions. Similarly, this role may involve settling disagreements or pointing out what is working and what is not in terms of team process.Boundary-Spanning RolesThe final two roles are related to activities outside of the team that help to connect the team to the larger organization.Anacona, D. G. (1990). Outward bound: Strategies for team survival in an organization. Academy of Management Journal, 33, 334–365; Anacona, D. G. (1992). Bridging the boundary: External activity and performance in organizational teams. Administrative Science Quarterly, 37, 634–665; Druskat, V. U., & Wheeler, J. V. (2003). Managing from the boundary: The effective leadership of self-managing work teams. Academy of Management Journal, 46, 435–457. Teams that engage in a greater level of boundary-spanning behaviors increase their team effectiveness.Marrone, J. A., Tesluk, P. E., & Carson, J. B. (2007). A multi-level investigation of antecedents and consequences of team member boundary-spanning behavior. Academy of Management Journal, 50, 1423–1439. The consul role includes gathering information from the larger organization and informing those within the organization about team activities, goals, and successes. Often the consul role is filled by team managers or leaders. The coordinator role includes interfacing with others within the organization so that the team’s efforts are in line with other individuals and teams within the organization.Types of TeamsThere are many different types of teams, and a given team may be described according to multiple types. For example, a team of scientists writing a research article for publication may be temporary, virtual, and cross-functional.Teams may be permanent or long term, but more typically, a team exists for a limited time. In fact, one-third of all teams in the United States are temporary.Gordon, J. (1992). Work teams: How far have they come? Training, 29, 59–62. An example of a temporary team is a task force that addresses a specific issue or problem until it is resolved. Other teams may be temporary or ongoing such as product development teams. In addition, matrix organizations have cross-functional teams where individuals from different parts of the organization staff the team, which may be temporary or long-standing.Virtual TeamsVirtual teams are teams in which members are not located in the same physical place. They may be in different cities, states, or even different countries. Some virtual teams are formed by necessity, such as to take advantage of lower labor costs in different countries; one study found that upward of 8.4 million individuals worldwide work virtually in at least one team.Ahuja, M., & Galvin, J. (2003). Socialization in virtual group. Journal of Management, 29, 161–185. Often, virtual teams are formed to take advantage of distributed expertise or time—the needed experts may be living in different cities. A company that sells products around the world, for example, may need technologists who can solve customer problems at any hour of the day or night. It may be difficult to find the caliber of people needed who would be willing to work at 2 a.m. on a Saturday, for example. So companies organize virtual technical support teams. BakBone Software, for instance, has a 13-member technical support team. Each member has a degree in computer science and is divided among offices in California, Maryland, England, and Tokyo. BakBone believes it has been able to hire stronger candidates by drawing from a diverse talent pool and hiring in different geographic regions rather than limiting hiring to one region or time zone.Alexander, S. (2000, November 10). Virtual teams going global. Infoworld. Retrieved February 12, 2009, from http://www.infoworld.com/articles/ca/xml/00/11/13/001113cavirtual.html.Despite potential benefits, virtual teams present special management challenges, particularly to the controlling function. Managers often think that they have to see team members working to believe that work is being done. Because this kind of oversight is impossible in virtual team situations, it is important to devise evaluation schemes that focus on deliverables. Are team members delivering what they said they would? In self-managed teams, are team members producing the results the team decided to measure itself on?Another special challenge of virtual teams is building trust. Will team members deliver results just as they would in face-to-face teams? Can members trust one another to do what they said they would do? Companies often invest in bringing a virtual team together at least once so members can get to know one another and build trust.Kirkman, B. L., Rosen, B., Gibson, C. B., Tesluk, P. E., & McPherson, S. O. (2002). Five challenges to virtual team success: Lessons from Sabre, Inc. Academy of Management Executive, 16, 67–79. In manager-led virtual teams, managers should be held accountable for their team’s results and evaluated on their ability as a team leader.Finally, communication is especially important in virtual teams, through e-mail, phone calls, conference calls, or project management tools that help organize work. If individuals in a virtual team are not fully engaged and tend to avoid conflict, team performance can suffer.Montoya-Weiss, M. M., Massey, A. P., & Song, M. (2001). Getting it together: Temporal coordination and conflict management in global virtual teams. Academy of Management Journal, 44, 1251–1262. A wiki is an Internet-based method for many people to collaborate and contribute to a document or discussion. Essentially, the document remains available for team members to access and amend at any time. The most famous example is Wikipedia, which is gaining traction as a way to structure project work globally and get information into the hands of those that need it. Empowered organizations put information into everyone’s hands.Kirkman, B. L., & Rosen, B. (2000). Powering up teams. Organizational Dynamics, 28(3), 48–66. Research shows that empowered teams are more effective than those that are not empowered.Mathieu, J. E., Gilson, L. L., & Ruddy, T. M. (2006). Empowerment and team effectiveness: An empirical test of an integrated model. Journal of Applied Psychology, 91, 97–108.Top Management TeamsTop management teams are appointed by the chief executive officer (CEO) and, ideally, reflect the skills and areas that the CEO considers vital for the company. There are no formal rules about top management team design or structure. The top management team often includes representatives from functional areas, such as finance, human resources, and marketing or key geographic areas, such as Europe, Asia, and North America. Depending on the company, other areas may be represented such as legal counsel or the company’s chief technologist. Typical top management team member titles include chief operating officer (COO), chief financial officer (CFO), chief marketing officer (CMO), or chief technology officer (CTO). Because CEOs spend an increasing amount of time outside their companies (i.e., with suppliers, customers, regulators, and so on), the role of the COO has taken on a much higher level of internal operating responsibilities. In most American companies, the CEO also serves as chairman of the board and can have the additional title of president. Companies have top management teams to help set the company’s vision and strategic direction, key tasks within the planning P-O-L-C function. Top teams make decisions on new markets, expansions, acquisitions, or divestitures. The top team is also important for its symbolic role: how the top team behaves dictates the organization’s culture and priorities by allocating resources and by modeling behaviors that will likely be emulated lower down in the organization. Importantly, the top team is most effective when team composition is functionally and demographically diverse and when it can truly operate as a team, not just as group of individual executives.Carpenter, M. A., Geletkanycz, M. A., & Sanders, W. G. (2004). The upper echelons revisited: The antecedents, elements, and consequences of TMT composition. Journal of Management, 30, 749–778.That “the people make the place” holds especially true for members of the top management team. In a study of 15 firms that demonstrated excellence, defined as sustained performance over a 15-year period, leadership researcher Jim Collins noted that those firms attended to people first and strategy second. “They got the right people on the bus, moved the wrong people off the bus, ushered the right people to the right seats—then they figured out where to drive it.”Collins, J. (2001, July–August). Level leadership. Harvard Business Review, 66–76. The best teams plan for turnover. Succession planning is the process of identifying future members of the top management team. Effective succession planning allows the best top teams to achieve high performance today and create a legacy of high performance for the future.Team Leadership and AutonomyTeams also vary in terms of how they are led. Traditional or manager-led teams are teams in which the manager serves as the team leader. The manager assigns work to other team members. These types of teams are the most natural to form, wherein managers have the power to hire and fire team members and are held accountable for the team’s results.Self-managed teams are a new form of team that rose in popularity with the Total Quality Movement in the 1980s. Unlike manager-led teams, these teams manage themselves and do not report directly to a supervisor. Instead, team members select their own leader, and they may even take turns in the leadership role. Self-managed teams also have the power to select new team members. As a whole, the team shares responsibility for a significant task, such as assembly of an entire car. The task is ongoing rather than temporary such as a charity fund drive for a given year.Organizations began to use self-managed teams as a way to reduce hierarchy by allowing team members to complete tasks and solve problems on their own. The benefits of self-managed teams extend much further. Research has shown that employees in self-managed teams have higher job satisfaction, increased self-esteem, and grow more on the job. The benefits to the organization include increased productivity, increased flexibility, and lower turnover. Self-managed teams can be found at all levels of the organization, and they bring particular benefits to lower-level employees by giving them a sense of ownership of their jobs that they may not otherwise have. The increased satisfaction can also reduce absenteeism because employees do not want to let their team members down.Typical team goals are improving quality, reducing costs, and meeting deadlines. Teams also have a “stretch” goal, which is difficult to reach but important to the business unit. Many teams also have special project goals. Texas Instruments (TI), a company that makes semiconductors, used self-directed teams to make improvements in work processes.Welins, R., Byham, W., & Dixon, G. (1994). Inside teams. San Francisco: Jossey-Bass. Teams were allowed to set their own goals in conjunction with managers and other teams. TI also added an individual component to the typical team compensation system. This individual component rewarded team members for learning new skills that added to their knowledge. These “knowledge blocks” include topics such as leadership, administration, and problem solving. The team decides what additional skills people might need to help the team meet its objectives. Team members would then take classes or otherwise demonstrate their proficiency in that new skill on the job to be certified for mastering the skill. Individuals could then be evaluated based on their contribution to the team and how they are building skills to support the team.Self-managed teams are empowered, which means that they have the responsibility as well as the authority to achieve their goals. Team members have the power to control tasks and processes and to make decisions. Research shows that self-managed teams may be at a higher risk of suffering from negative outcomes due to conflict, so it is important that they are supported with training to help them deal with conflict effectively.Alper, S., Tjosvold, D., & Law, K. S. (2000). Conflict management, efficacy, and performance in organizational teams. Personnel Psychology, 53, 625–642; Langfred, C. W. (2007). The downside of self-management: A longitudinal study of the effects of conflict on trust, autonomy, and task interdependence in self-managing teams. Academy of Management Journal, 50, 885–900. Self-managed teams may still have a leader who helps them coordinate with the larger organization.Morgeson, F. P. (2005). The external leadership of self-managing teams: Intervening in the context of novel and disruptive events. Journal of Applied Psychology, 90, 497–508. For a product team composed of engineering, production, and marketing employees, empowerment means that the team can decide everything about a product’s appearance, production, and cost without having to get permission or sign-off from higher management. As a result, empowered teams can more effectively meet tighter deadlines. At AT&T, for example, the model-4200 phone team cut development time in half while lowering costs and improving quality by using the empowered team approach.Parker, G. (1994). Cross-functional teams. San Francisco: Jossey-Bass. A special form of self-managed teams are self-directed teams in which they also determine who will lead them with no external oversight.Figure 13.10Team leadership is a major determinant of how autonomous a team can be.Designing Effective TeamsDesigning an effective team means making decisions about team composition (who should be on the team), team size (the optimal number of people on the team), and team diversity (should team members be of similar background, such as all engineers, or of different backgrounds). Answering these questions will depend, to a large extent, on the type of task that the team will be performing. Teams can be charged with a variety of tasks, from problem solving to generating creative and innovative ideas to managing the daily operations of a manufacturing plant.Who Are the Best Individuals for the Team?A key consideration when forming a team is to ensure that all the team members are qualified for the roles they will fill for the team. This process often entails understanding the knowledge, skills, and abilities (KSAs) of team members as well as the personality traits needed before starting the selection process.Humphrey, S. E., Hollenbeck, J. R., Meyer, C. J., & Ilgen, D. R. (2007). Trait configurations in self-managed teams: A conceptual examination of the use of seeding for maximizing and minimizing trait variance in teams. Journal of Applied Psychology, 92, 885–892. When talking to potential team members, be sure to communicate the job requirements and norms of the team. To the degree that this is not possible, such as when already existing groups are used, think of ways to train the team members as much as possible to help ensure success. In addition to task knowledge, research has shown that individuals who understand the concepts covered in this chapter and in this book such as conflict resolution, motivation, planning, and leadership actually perform better on their jobs. This finding holds for a variety of jobs, including officer in the United States Air Force, an employee at a pulp mill, or a team member at a box manufacturing plant.Hirschfeld, R. R., Jordan, M. H., Field, H. S., Giles, W. F., & Armenakis, A. A. (2006). Becoming team players: Team members’ mastery of teamwork knowledge as a predictor of team task proficiency and observed teamwork effectiveness. Journal of Applied Psychology, 91, 467–474; Stevens, M. J., & Campion, M. A. (1999). Staffing work teams: Development and validation of a selection test for teamwork settings. Journal of Management, 25, 207–228.How Large Should My Team Be?Interestingly, research has shown that regardless of team size, the most active team member speaks 43% of the time. The difference is that the team member who participates the least in a three-person team is still active 23% of the time versus only 3% in a 10-person team.McGrath, J. E. (1984). Groups: Interaction and performance. Englewood Cliffs, NJ: Prentice Hall; Solomon, H. (1960). Mathematical thinking in the measurement of behavior. Glencoe, IL: Free Press. When deciding team size, a good rule of thumb is a size of 2 to 20 members. The majority of teams have 10 members or less because the larger the team, the harder it is to coordinate and interact as a team. With fewer individuals, team members are more able to work through differences and agree on a common plan of action. They have a clearer understanding of others’ roles and greater accountability to fulfill their roles (remember social loafing?). Some tasks, however, require larger team sizes because of the need for diverse skills or because of the complexity of the task. In those cases, the best solution is to create subteams where one member from each subteam is a member of a larger coordinating team. The relationship between team size and performance seems to greatly depend on the level of task interdependence, with some studies finding larger teams outproducing smaller teams and other studies finding just the opposite.Campion, M. A., Medsker, G. J., & Higgs, A. C. (1993). Relations between work group characteristics and effectiveness: Implications for designing effective work groups. Personnel Psychology, 46, 823–850; Magjuka, R. J., & Baldwin, T. T. (1991). Team-based employee involvement programs: Effects of design and administration. Personnel Psychology, 44, 793–812; Vinokur-Kaplan, D. (1995). Treatment teams that work (and those that don’t): An application of Hackman’s group effectiveness model to interdisciplinary teams in psychiatric hospitals. Journal of Applied Behavioral Science, 31, 303–327. The bottom line is that team size should be matched to the goals of the team.How Diverse Should My Team Be?Team composition and team diversity often go hand in hand. Teams whose members have complementary skills are often more successful because members can see each other’s blind spots. One team member’s strengths can compensate for another’s weaknesses.Jackson, S. E., Joshi, A., & Erhardt, N. L. (2003). Recent research on team and organizational diversity: SWOT analysis and implications. Journal of Management, 29, 801–830; van Knippenberg, D., De Dreu, C. K. W., & Homan, A. C. (2004). Work group diversity and group performance: An integrative model and research agenda. Journal of Applied Psychology, 89, 1008–1022. For example, consider the challenge that companies face when trying to forecast future sales of a given product. Workers who are educated as forecasters have the analytic skills needed for forecasting, but these workers often lack critical information about customers. Salespeople, in contrast, regularly communicate with customers, which means they’re in the know about upcoming customer decisions. But salespeople often lack the analytic skills, discipline, or desire to enter this knowledge into spreadsheets and software that will help a company forecast future sales. Putting forecasters and salespeople together on a team tasked with determining the most accurate product forecast each quarter makes the best use of each member’s skills and expertise.Diversity in team composition can help teams come up with more creative and effective solutions. Research shows that teams that believe in the value of diversity performed better than teams that do not.Homan, A. C., van Knippenberg, D., Van Kleef, G. A., & De Dreu, C. K. W. (2007). Bridging faultlines by valuing diversity: Diversity beliefs, information elaboration, and performance in diverse work groups. Journal of Applied Psychology, 92, 1189–1199. The more diverse a team is in terms of expertise, gender, age, and background, the more ability the group has to avoid the problems of groupthink.Surowiecki. J. (2005). The wisdom of crowds. New York: Anchor Books. For example, different educational levels for team members were related to more creativity in research and development teams and faster time to market for new products.Eisenhardt, K. M., & Tabrizi, B. N. (1995). Accelerating adaptive processes: Product innovation in the global computer industry. Administrative Science Quarterly, 4, 84–110; Shin, S. J., & Zhou, J. (2007). When is educational specialization heterogeneity related to creativity in research and development teams? Transformational leadership as a moderator. Journal of Applied Psychology, 92, 1709–1721. Members will be more inclined to make different kinds of mistakes, which means that they’ll be able to catch and correct those mistakes.KEY TAKEAWAYTeams, though similar to groups, are different in both scope and composition. A team is a particular type of group: a cohesive coalition of people working together to achieve mutual goals. In the 21st century, many companies have moved toward the extensive use of teams. The task a team is charged with accomplishing affects how they perform. In general, task interdependence works well for self-managing teams. Team roles consist of task, social, and boundary-spanning roles. Different types of teams include task forces, product development teams, cross-functional teams, and top management teams. Team leadership and autonomy varies depending on whether the team is traditionally managed, self-managed, or self-directed. Teams are most effective when teams consist of members with the right KSAs for the tasks, are not too large, contain diversity across team members. Decisions about where and how to use teams, the leadership of teams, and the structure of teams illustrate the overlap in the design and leading P-O-L-C functions.EXERCISESThink of the last team you were in. Did the task you were asked to do affect the team? Why or why not?Which of the 10 work roles do you normally take in a team? How difficult or easy do you think it would be for you to take on a different role?Have you ever worked in a virtual team? If so, what were the challenges and advantages of working virtually?How large do you think teams should be and why?13.4 Organizing Effective TeamsLEARNING OBJECTIVESUnderstand how to create team norms, roles, and expectations.Identify keys to running effective team meetings.When a team is well organized, it tends to perform well. Well-designed teams are able to capitalize on positive events while maintaining composure when facing a negative event. There are several strategies that can boost team effectiveness through effective organization.Establishing Team Norms and ContractsA key to successful team design is to have clear norms, roles, and expectations among team members. Problems such as social loafing or groupthink can be avoided by paying careful attention to team member differences and providing clear definitions for roles, expectancy, measurement, and rewards.Team NormsNorms are shared expectations about how things operate within a group or team. Just as new employees learn to understand and share the assumptions, norms, and values that are part of an organization’s culture, they also must learn the norms of their immediate team. This understanding helps teams be more cohesive and perform better. Norms are a powerful way of ensuring coordination within a team. For example, is it acceptable to be late to meetings? How prepared are you supposed to be at the meetings? Is it acceptable to criticize someone else’s work? These norms are shaped early during the life of a team and affect whether the team is productive, cohesive, and successful.Explore some ideas about team norms by doing the Square Wheels exercise.Square Wheels Exercise and Group DiscussionSometimes it can be challenging to start a conversation around team ground rules and performance. The following exercise can be used to get a team talking about what works and what doesn’t in teams they’ve worked in and how your team can be designed most effectively.Team ContractsScientific research as well as experience working with thousands of teams show that teams that are able to articulate and agree on established ground rules, goals, and roles and develop a team contract around these standards are better equipped to face challenges that may arise within the team.Katzenback, J. R., & Smith, D. K. (1993). The wisdom of teams. Boston: Harvard Business School Press; Porter, T. W., & Lilly, B. S. (1996). The effects of conflict, trust, and task commitment on project team performance. International Journal of Conflict Management, 7, 361–376. Having a team contract does not necessarily mean that the team will be successful, but it can serve as a road map when the team veers off course. Questions that can help to create a meaningful team contract include:Team Values and Goals: What are our shared team values? What is our team goal?Team Roles and Leadership: Who does what within this team? (Who takes notes at the meeting? Who sets the agenda? Who assigns tasks? Who runs the meetings?) Does the team have a formal leader? If so, what are his or her roles?Team Decision Making: How are minor decisions made? How are major decisions made?Team Communication: Who do you contact if you cannot make a meeting? Who communicates with whom? How often will the team meet?Team Performance: What constitutes good team performance? What if a team member tries hard but does not seem to be producing quality work? How will poor attendance/work quality be dealt with?Team MeetingsAnyone who has been involved in a team knows it involves team meetings. While few individuals relish meetings, they serve an important function in terms of information sharing and decision making. They also serve an important social function and can help to build team cohesion and a task function in terms of coordination. Unfortunately, we’ve all attended lengthy meetings that were a waste of time and where little happened that couldn’t have been accomplished by reading an e-mail in five minutes. To run effective meetings, it helps to think of meetings in terms of three sequential steps.Haynes, M. E. (1997). Effective meeting skills. Menlo Park, C Crisp.Before the MeetingMuch of the effectiveness of a meeting is determined before the team gathers. There are three key things you can do to ensure the team members get the most out of their meeting.First, ask yourself: Is a meeting needed? Leaders should do a number of things before the meeting to help make it effective. The first thing is to be sure a meeting is even needed. If the meeting is primarily informational, ask yourself whether it is imperative that the group fully understands the information and whether future decisions will be built on this information. If so, a meeting may be needed. If not, perhaps simply communicating with everyone in a written format will save valuable time. Similarly, decision-making meetings make the most sense when the problem is complex and important, there are questions of fairness to be resolved, and commitment is needed moving forward.Second, create and distribute an agenda. An agenda is important in helping to inform those invited about the purpose of the meeting. It also helps organize the flow of the meeting and keep the team on track.Third, send a reminder before the meeting. Reminding everyone of the purpose, time, and location of the meeting helps everyone prepare themselves. Anyone who has attended a team meeting only to find there is no reason to meet because members haven’t completed their agreed-upon tasks knows that, as a result, team performance or morale can be negatively affected. Follow up to make sure everyone is prepared. As a team member, inform others immediately if you will not be ready with your tasks so they can determine whether the meeting should be postponed.During the MeetingDuring the meeting, there are several things you can do to make sure the team starts and keeps on track.Start the meeting on time. Waiting for members who are running late only punishes those who are on time and reinforces the idea that it’s OK to be late. Starting the meeting promptly sends an important signal that you are respectful of everyone’s time.Follow the meeting agenda. Veering off agenda communicates to members that it is not important. It also makes it difficult for others to keep track of where you are in the meeting and can facilitate important points not being addressed.Manage group dynamics for full participation. As you’ve seen in this chapter, there are a number of group dynamics that can limit a team’s functioning. Be on the lookout for full participation and engagement from all team members as well as any potential problems such as social loafing, group conflict, or groupthink.Summarize the meeting with action items. Be sure to clarify team member roles moving forward. If individual’s tasks are not clear, chances are role confusion will arise later. There should be clear notes from the meeting regarding who is responsible for each action item and the timeframes associated with next steps.End the meeting on time. This is vitally important as it shows that you respect everyone’s time and are organized. If another meeting is needed to follow up, schedule it later, but don’t let the meeting run over.After the MeetingFollow up on action items. After the meeting you probably have several action items. In addition, it is likely that you’ll need to follow up on the action items of others.Figure 13.14Conducting meetings standing up saves time yet keeps information flowing across the team. See Bluedorn, A. C., Turban, D. B., & Love, M. S. (1999). The effects of stand-up and sit-down meeting formats on meeting outcomes. Journal of Applied Psychology, 84, 277–285. This technique is used by Johnson & Johnson, Ritz-Carlton, ThoughtWorks, Agile Software, and Corning.Photo used by permission by Jason Yip.KEY TAKEAWAYMuch like group development, team socialization takes place over the life of the team. The stages move from evaluation to commitment to role transition. Team norms are important for the team process and help to establish who is doing what for the team and how the team will function. Creating a team contract helps with this process. Keys to address in a team contract are team values and goals, team roles and leadership, team decision making, team communication expectations, and how team performance is characterized. Team meetings can help a team coordinate and share information. Effective meetings include preparation, management during the meeting, and follow up on action items generated in the meeting.EXERCISESHave the norms for most of the teams you have belonged to been formal or informal? How do you think that has affected these teams?Have you ever been involved in creating a team contract? Explain how you think that may have influenced how the team functioned?Should the person requesting a meeting always prepare a meeting agenda? Why or why not?Do you think conducting team meetings standing up is a good idea? Why or why not?13.5 Barriers to Effective TeamsLEARNING OBJECTIVERecognize common barriers to effective teams and how to address themProblems can arise in any team that will hurt the team’s effectiveness. Here are some common problems faced by teams and how to deal with them.Common Barriers to Effective TeamsChallenges of Knowing Where to BeginAt the start of a project, team members may be at a loss as to how to begin. Also, they may have reached the end of a task but are unable to move on to the next step or put the task to rest.Floundering often results from a lack of clear goals, so the remedy is to go back to the team’s mission or plan and make sure that it is clear to everyone. Team leaders can help move the team past floundering by asking, “What is holding us up? Do we need more data? Do we need assurances or support? Does anyone feel that we’ve missed something important?”Dominating Team MembersSome team members may have a dominating personality that encroaches on the participation or airtime of others. This overbearing behavior may hurt the team morale or the momentum of the team.A good way to overcome this barrier is to design a team evaluation to include a “balance of participation” in meetings. Knowing that fair and equitable participation by all will affect the team’s performance evaluation will help team members limit domination by one member and encourage participation from all members, even shy or reluctant ones. Team members can say, “We’ve heard from Mary on this issue, so let’s hear from others about their ideas.”Poor Performance of Some Team MembersResearch shows that teams deal with poor performers in different ways, depending on members’ perceptions of the reasons for poor performance.Jackson, C. L., & LePine, J. A. (2003). Peer responses to a team’s weakest link: A test and extension of LePine and Van Dyne’s model. Journal of Applied Psychology, 88, 459–475. In situations in which the poor performer is perceived as lacking in ability, teams are more likely to train the member. In situations in which members perceive the individual as simply being low on motivation, they are more likely to try to motivate or reject the poor performer.Keep in mind that justice is an important part of keeping individuals working hard for the team.Colquitt, J. A. (2004). Does the justice of the one interact with the justice of the many? Reactions to procedural justice in teams. Journal of Applied Psychology, 89, 633–646. Be sure that poor performers are dealt with in a way that is deemed fair by all the team members.Poorly Managed Team ConflictDisagreements among team members are normal and should be expected. Healthy teams raise issues and discuss differing points of view because that will ultimately help the team reach stronger, more well-reasoned decisions. Unfortunately, sometimes disagreements arise because of personality issues or feuds that predated the teams’ formation.Ideally, teams should be designed to avoid bringing adversaries together on the same team. If that is not possible, the next best solution is to have adversaries discuss their issues privately, so the team’s progress is not disrupted. The team leader or other team member can offer to facilitate the discussion. One way to make a discussion between conflicting parties meaningful is to form a behavioral contract between the two parties. That is, if one party agrees to do X, the other will agree to do Y.Scholtes, P. (1988). The team handbook. Madison, WI: Joiner Associates.KEY TAKEAWAYBarriers to effective teams include the challenges of knowing where to begin, dominating team members, the poor performance of team members, and poorly managed team conflict.EXERCISESHave you ever been involved in a team where one or more dominating team members hurt the team’s performance? Share what happened and how the team dealt with this.Have you ever been involved in a team where conflict erupted between team members? How was the situation handled?13.6 Developing Your Team SkillsLEARNING OBJECTIVEIdentify guidelines for developing cohesion in your team.Steps to Creating and Maintaining a Cohesive TeamThere are several steps you can take as a manager to help build a cohesive team. For example, you can work to:Align the group with the greater organization. Establish common objectives in which members can get involved.Let members have choices in setting their own goals. Include them in decision making at the organizational level.Define clear roles. Demonstrate how each person’s contribution furthers the group goal—everyone is responsible for a special piece of the puzzle.Situate group members in proximity to one another. This builds familiarity.Give frequent praise, both to individuals and to the group, and encourage them to praise each other. This builds individual self-confidence, reaffirms positive behavior, and creates an overall positive atmosphere.Treat all members with dignity and respect. This demonstrates that there are no favorites and everyone is valued.Celebrate differences. This highlights each individual’s contribution while also making diversity a norm.Establish common rituals. Thursday morning coffee, monthly potlucks—these reaffirm group identity and create shared experiences.KEY TAKEAWAYThere are many things you can do to help build a cohesive team. One key thing to remember is that too much cohesion without strong performance norms can be a problem. Many of the ways to build cohesive groups are also fun, such as celebrating successes and creating rituals.EXERCISESThink of the most cohesive group you have ever been in. What factors made the group so close?What are some challenges you see to creating a cohesive group?How does team size affect cohesion?

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Published - Fri, 10 Mar 2023

Communication in Organizations - Principles of Management - Chapter 12

Created by - Jenny Clarke

Communication in Organizations - Principles of Management - Chapter 12

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Define communication and understand the communication process.Understand and overcome barriers to effective communication.Compare and contrast different types of communication.Compare and contrast different communication channels.Develop your own communication skills.Figure 12.2 The P-O-L-C Framework12.1 Case in Point: Edward Jones Communicates CaringBecause of the economic turmoil that most financial institutions find themselves in today, it might come as a surprise that an individual investment company came in at number 2 on Fortune magazine’s “100 Best Companies to Work For” list in 2010, behind software giant SAS Institute Inc. Edward Jones Investments (a limited partnership company) was originally founded in St. Louis, Missouri, where its headquarters remain today. With more than 10,000 offices across the United States and Canada, they are able to serve nearly 7 million investors. This is the 10th year Edward Jones has made the Best Companies list. In addition, Edward Jones ranked highest with client satisfaction among full-service investment firms, according to an annual survey released by J. D. Power and Associates in 2009. How has Edward Jones maintained this favorable reputation in the eyes of both its employees and its customers?It begins with the perks offered, including profit sharing and telecommuting. But if you ask the company’s CEO, Tim Kirley, he will likely tell you that it goes beyond the financial incentives, and at the heart of it is the culture of honest communication that he adamantly promotes. Kirley works with senior managers and team members in what makes up an open floor plan and always tries to maintain his approachability. Examples of this include direct communication, letters to staff and video, and Internet-posted talks. In addition, regular meetings are held to celebrate achievements and reinforce the firm’s ethos. Staff surveys are frequently administered and feedback is widely taken into consideration so that the 10,000 employees feel heard and respected.According to Fortune’s managing editor, Hank Gilman, “The most important considerations for this year’s list were hiring and the ways in which companies are helping their employees weather the recession.” Edward Jones was able to persevere through the trauma of the recent financial crisis with no layoffs and an 8% one-year job growth. While a salary freeze was enacted, profit sharing continued. Kirley insists that the best approach to the recent economic downturn is to remain honest with his employees even when the news he is delivering is not what they want to hear.Edward Jones was established in 1922 by Edward D. Jones Sr., and long ago, the company recognized the importance of a satisfied workforce and how that has the ability to translate into customer satisfaction and long-term growth. The company’s internal policy of open communication seems to carry over to how advisors value their relationship with individual customers. Investors are most likely to contact their advisor by directly visiting them at a local branch or by picking up the phone and calling them. Edward Jones’s managing partner, Jim Weddle, explains it best himself: “We are able to stay focused on the long-term because we are a partnership and we know who we are and what we do. When you respect the people who work here, you take care of them—not just in the good times, but in the difficult times as well.”Case written by [citation redacted per publisher request]. Based on information from 100 best companies to work for. (2010, February 8). Fortune. Retrieved February 2, 2010, from http://money.cnn.com/magazines/fortune/bestcompanies/2010/full_list; St. Louis firms make Fortune’s best workplaces. (2009, January 22). St. Louis Business Journal. Retrieved February 3, 2010, from http://www.bizjournals.com/stlouis/stories/2009/01/19/daily40.html; Rodrigues, N., & Clayton, C. (2009). A positive difference in the office and the world. Sunday Times, pp. 10, 11. Retrieved from LexisNexis Academic database; Lawlor, A. (2008, March 13). Edward Jones is one to work for. Sunday Times, Financial Adviser. Retrieved February 2, 2010, from LexisNexis Academic database; Keeping clients happy. (2009, August 1). Registered Rep. Retrieved February 2, 2010, from http://registeredrep.com/planner-ria-practice/finance-keeping-clients-happy-0801DISCUSSION QUESTIONSCommunication is a key part of the leading facet of the P-O-L-C framework. What other things could Edward Jones do to increase its effectiveness in the area of communications?As an organization, what qualities do you think Edward Jones looks for when hiring new financial advisors? How do you think that affects its culture over time?With its success in North America, why do you think Edward Jones has not expanded across the Pacific or Atlantic Oceans?How has technology enabled Edward Jones to become more effective at communicating with its employees and customers?What types of customer service policies do think Edward Jones has in place? How do these relate to its culture over time?12.2 Understanding CommunicationLEARNING OBJECTIVESDefine communication.Understand the communication process.Communication supports each of a manager’s P-O-L-C functions. The ability to effectively communicate is a necessary condition for successfully planning, organizing, leading, and controlling. Communication is vital to organizations—it’s how we coordinate actions and achieve goals. It is defined in the Merriam-Webster’s dictionary as “a process by which information is exchanged between individuals through a common system of symbols, signs, or behavior.”Merriam-Webster online dictionary. (2008). Retrieved December 1, 2008, from http://www.merriam-webster.com/dictionary/communication. We know that 50%–90% of a manager’s time is spent communicatingSchnake, M. E., Dumler, M. P., Cochran, D. S., & Barnett, T. R. (1990). Effects of differences in subordinate perceptions of superiors’ communication practices. The Journal of Business Communication, 27, 37–50. and that communication ability is related to a manager’s performance.Penley, L. E., Alexander, E. R., Jernigan, I. E., & Henwood, C. I. (1991). Communication abilities of managers: The relationship of performance. Journal of Management, 17, 57–76. In most work environments, a miscommunication is an annoyance—it can interrupt workflow by causing delays and interpersonal strife. And in some work arenas, like operating rooms and airplane cockpits, communication can be a matter of life and death.So, just how prevalent is the problem of miscommunication in the workplace? You may be surprised to learn that the relationship between miscommunication and negative outcomes is strong. A recent NASA study suggests that deficient interpersonal communication was a causal factor in approximately 70%–80% of aviation accidents over a 20-year period.Baron, R. (2004). Barriers to effective communication: Implications for the cockpit. Retrieved July 3, 2008, from AirlineSafety.com: http://www.airlinesafety.com/editorials/BarriersToCommunication.htm.Poor communication can also lead to lawsuits. For example, you might think that malpractice suits are filed against doctors based on the outcome of their treatments alone. But a 1997 study of malpractice suits found that a primary influence on whether a doctor is sued is that doctor’s communication style. While the combination of a bad outcome and patient unhappiness can quickly lead to litigation, a warm, personal communication style leads to greater patient satisfaction. And satisfied patients are less likely to sue.Communications skills cut malpractice risk—study reveals most important reason that patients decide to file malpractice suits is because of poor communication by physicians and not medical errors. (1997, October). USA Today.Figure 12.4Success on complicated missions at NASA depends on strong communication.Source: http://en.wikipedia.org/wiki/Image:Orion_briefing_model.jpgFor leaders and organizations, poor communication costs money and wastes time. One study found that 14% of each workweek is wasted on poor communication.Armour, S. (1998, September 30). Failure to Communicate Costly for Companies. USA Today, 1A. In contrast, effective communication is an asset for organizations and individuals alike. Effective communication skills, for example, are an asset for job seekers. A recent study of recruiters at 85 business schools ranked communication and interpersonal skills as the highest skills they were looking for, with 89% of the recruiters saying they were important.Alsop, R. (2006, September 20). The top business schools: Recruiters’ M.B.A. picks. Wall Street Journal Online. Retrieved September 20, 2006 from http://online.wsj.com/article/SB115860376846766495.html?mod=2_1245_1. Good communication can also help a company retain its star employees. Surveys find that when employees think their organizations do a good job of keeping them informed about matters that affect them and they have ready access to the information they need to do their jobs, they are more satisfied with their employers.What are the bottom line results of communicating? (2003, June). Pay for Performance Report, p. 1. Retrieved July 1, 2008, from http://www.mercerHR.com. So, can good communication increase a company’s market value? The answer seems to be yes. “When you foster ongoing communications internally, you will have more satisfied employees who will be better equipped to effectively communicate with your customers,” says Susan Meisinger, President/CEO of the Society for Human Resource Management, citing research findings that for organizations that are able to improve their communication integrity, their market value increases by as much as 7.1%.Meisinger, S. (2003, February). Enhancing communications—ours and yours. HR Magazine. Retrieved July 1, 2008, from http://www.shrm.org/hrmagazine/archive/0203toc.asp. We will explore the definition and benefits of effective communication in our next section.The Communication ProcessFigure 12.5Lee Iacocca, past president and CEO of Chrysler until his retirement in 1992, said, “You can have brilliant ideas, but if you can’t get them across, your ideas won’t get you anywhere.”Source: http://en.wikipedia.org/wiki/Lee_IacoccaCommunication fulfills three main functions within an organization: (1) transmitting information, (2) coordinating effort, and (3) sharing emotions and feelings. All these functions are vital to a successful organization. Transmitting information is vital to an organization’s ability to function. Coordinating effort within the organization helps people work toward the same goals. Sharing emotions and feelings bonds teams and unites people in times of celebration and crisis. Effective communication helps people grasp issues, build rapport with coworkers, and achieve consensus. So, how can we communicate effectively? The first step is to understand the communication process.We all exchange information with others countless times a day, by phone, e-mail, printed word, and of course, in person. Let’s take a moment to see how a typical communication works using the Process Model of Communication as a guide.Figure 12.6 The Process Model of CommunicationA Sender, such as a boss, coworker, or customer, originates the Message with a thought. For example, the boss’s thought could be: “Get more printer toner cartridges!”The Sender encodes the Message, translating the idea into words.The boss may communicate this thought by saying, “Hey you guys, we need to order more printer toner cartridges.”The medium of this encoded Message may be spoken words, written words, or signs.The receiver is the person who receives the Message.The Receiver decodes the Message by assigning meaning to the words.In this example, our Receiver, Bill, has a to-do list a mile long. “The boss must know how much work I already have.” the Receiver thinks. Bill’s mind translates his boss’s Message as, “Could you order some printer toner cartridges, in addition to everything else I asked you to do this week…if you can find the time?”The meaning that the Receiver assigns may not be the meaning that the Sender intended because of such factors as noise. Noise is anything that interferes with or distorts the Message being transformed. Noise can be external in the environment (such as distractions) or it can be within the Receiver. For example, the Receiver may be highly nervous and unable to pay attention to the Message. Noise can even occur within the Sender: the Sender may be unwilling to take the time to convey an accurate Message or the words she chooses can be ambiguous and prone to misinterpretation.Picture the next scene. The place: a staff meeting. The time: a few days later. The boss believes her Message has been received.“Are the printer toner cartridges here yet?” she asks.“You never said it was a rush job!” the Receiver protests.“But!”“But!”Miscommunications like these happen in the workplace every day. We’ve seen that miscommunication does occur in the workplace. But how does a miscommunication happen? It helps to think of the communication process. The series of arrows pointing the way from the Sender to the Receiver and back again can, and often do, fall short of their target.KEY TAKEAWAYCommunication is vital to organizations. Poor communication is prevalent and can have serious repercussions. Communication fulfills three functions within organizations: transmitting information, coordinating, and sharing emotions and feelings. Noise can disrupt or distort communication.EXERCISESWhere have you seen the communication process break down—at work? At school? At home?Explain how miscommunication might be related to an accident at work.Give an example of noise during the communication process.12.3 Communication BarriersLEARNING OBJECTIVESUnderstand different ways that the communication process can be sidetracked.Understand the problem of poor listening and how to promote active listening.Barriers to Effective CommunicationCommunicating can be more of a challenge than you think, when you realize the many things that can stand in the way of effective communication. These include filtering, selective perception, information overload, emotional disconnects, lack of source familiarity or credibility, workplace gossip, semantics, gender differences, differences in meaning between Sender and Receiver, and biased language. Let’s examine each of these barriers.FilteringFiltering is the distortion or withholding of information to manage a person’s reactions. Some examples of filtering include a manager who keeps her division’s poor sales figures from her boss, the vice president, fearing that the bad news will make him angry. The old saying, “Don’t shoot the messenger!” illustrates the tendency of Receivers (in this case, the vice president) to vent their negative response to unwanted Messages on the Sender. A gatekeeper (the vice president’s assistant, perhaps) who doesn’t pass along a complete Message is also filtering. The vice president may delete the e-mail announcing the quarter’s sales figures before reading it, blocking the Message before it arrives.As you can see, filtering prevents members of an organization from getting a complete picture of the way things are. To maximize your chances of sending and receiving effective communications, it’s helpful to deliver a Message in multiple ways and to seek information from multiple sources. In this way, the effect of any one person’s filtering the Message will be diminished.Since people tend to filter bad news more during upward communication, it is also helpful to remember that those below you in an organization may be wary of sharing bad news. One way to defuse the tendency to filter is to reward employees who clearly convey information upward, regardless of whether the news is good and bad.Here are some of the criteria that individuals may use when deciding whether to filter a Message or pass it on:Past experience: Was the Sender rewarded for passing along news of this kind in the past, or was she criticized?Knowledge, perception of the speaker: Has the Receiver’s direct superior made it clear that “no news is good news?”Emotional state, involvement with the topic, level of attention: Does the Sender’s fear of failure or criticism prevent him from conveying the Message? Is the topic within his realm of expertise, increasing his confidence in his ability to decode it, or is he out of his comfort zone when it comes to evaluating the Message’s significance? Are personal concerns impacting his ability to judge the Message’s value?Once again, filtering can lead to miscommunications in business. Each listener translates the Message into his or her own words, creating his or her own version of what was said.Alessandra, T. (1993). Communicating at work. New York: Fireside.Selective PerceptionSelective perception refers to filtering what we see and hear to suit our own needs. This process is often unconscious. Small things can command our attention when we’re visiting a new place—a new city or a new company. Over time, however, we begin to make assumptions about the way things are on the basis of our past experience. Often, much of this process is unconscious. “We simply are bombarded with too much stimuli every day to pay equal attention to everything so we pick and choose according to our own needs.”Pope, R. R. Selective perception. Illinois State University. Retrieved December 1, 2008, from http://lilt.ilstu.edu/rrpope/rrpopepwd/articles/perception3.html. Selective perception is a time-saver, a necessary tool in a complex culture. But it can also lead to mistakes.Think back to the earlier example conversation between Bill, who was asked to order more toner cartridges, and his boss. Since Bill found his boss’s to-do list to be unreasonably demanding, he assumed the request could wait. (How else could he do everything else on the list?) The boss, assuming that Bill had heard the urgency in her request, assumed that Bill would place the order before returning to the other tasks on her list.Both members of this organization were using selective perception to evaluate the communication. Bill’s perception was that the task of ordering could wait. The boss’s perception was that her time frame was clear, though unstated. When two selective perceptions collide, a misunderstanding occurs.Information OverloadInformation overload can be defined as “occurring when the information processing demands on an individual’s time to perform interactions and internal calculations exceed the supply or capacity of time available for such processing.”Schick, A. G., Gordon, L. A., & Haka, S. (1990). Information overload: A temporal approach. Accounting, Organizations, and Society, 15, 199–220. Messages reach us in countless ways every day. Some are societal—advertisements that we may hear or see in the course of our day. Others are professional—e-mails, and memos, voice mails, and conversations from our colleagues. Others are personal—messages and conversations from our loved ones and friends.Add these together and it’s easy to see how we may be receiving more information than we can take in. This state of imbalance is known as information overload. Experts note that information overload is “A symptom of the high-tech age, which is too much information for one human being to absorb in an expanding world of people and technology. It comes from all sources including TV, newspapers, and magazines as well as wanted and unwanted regular mail, e-mail and faxes. It has been exacerbated enormously because of the formidable number of results obtained from Web search engines.”Retrieved July 1, 2008, from PC Magazine encyclopedia Web site, http://www.pcmag.com/encyclopedia_term/0,2542,t=information+overload&i=44950,00.asp, and reinforced by information in Dawley, D. D., & Anthony, W. P. (2003). User perceptions of e-mail at work. Journal of Business and Technical Communication, 17, 170–200. Other research shows that working in such fragmented fashion has a significant negative effect on efficiency, creativity, and mental acuity.Based on Overholt, A. (2001, February). Intel’s got (too much) mail. Fast Company. Retrieved July 2, 2008, from http://www.fastcompany.com/online/44/intel.html and http://blogs.intel.com/it/2006/10/information_overload.php.Going back to our example of Bill. Let’s say he’s in his cubicle on the phone with a supplier. While he’s talking, he hears the chime of e-mail alerting him to an important message from his boss. He’s scanning through it quickly, while still on the phone, when a coworker pokes his head around the cubicle corner to remind Bill that he’s late for a staff meeting. The supplier on the other end of the phone line has just given Bill a choice among the products and delivery dates he requested. Bill realizes he missed hearing the first two options, but he doesn’t have time to ask the supplier to repeat them all or to try reconnecting to place the order at a later time. He chooses the third option—at least he heard that one, he reasons, and it seemed fair. How good was Bill’s decision amid all the information he was processing at the same time?Emotional disconnectsEmotional disconnects happen when the Sender or the Receiver is upset, whether about the subject at hand or about some unrelated incident that may have happened earlier. An effective communication requires a Sender and a Receiver who are open to speaking and listening to one another, despite possible differences in opinion or personality. One or both parties may have to put their emotions aside to achieve the goal of communicating clearly. A Receiver who is emotionally upset tends to ignore or distort what the Sender is saying. A Sender who is emotionally upset may be unable to present ideas or feelings effectively.Lack of Source CredibilityLack of source familiarity or credibility can derail communications, especially when humor is involved. Have you ever told a joke that fell flat? You and the Receiver lacked the common context that could have made it funny. (Or yes, it could have just been a lousy joke.) Sarcasm and irony are subtle, and potentially hurtful, commodities in business. It’s best to keep these types of communications out of the workplace as their benefits are limited, and their potential dangers are great. Lack of familiarity with the Sender can lead to misinterpreting humor, especially in less-rich information channels like e-mail. For example, an e-mail from Jill that ends with, “Men, like hens, should boil in vats of oil,” could be interpreted as antimale if the Receiver didn’t know that Jill has a penchant for rhyme and likes to entertain coworkers by making up amusing sayings.Similarly, if the Sender lacks credibility or is untrustworthy, the Message will not get through. Receivers may be suspicious of the Sender’s motivations (“Why am I being told this?”). Likewise, if the Sender has communicated erroneous information in the past, or has created false emergencies, his current Message may be filtered.Workplace gossip, also known as the grapevine, is a lifeline for many employees seeking information about their company.Kurland, N. B., & Pelled, L. H. (2000). Passing the word: Toward a model of gossip and power in the workplace. Academy of Management Review, 25, 428–438. Researchers agree that the grapevine is an inevitable part of organizational life. Research finds that 70% of all organizational communication occurs at the grapevine level.Crampton, S. M. (1998). The informal communication network: factors influencing grapevine activity. Public Personnel Management. Retrieved July 2, 2008, from http://www.allbusiness.com/management/735210-1.html.Employees trust their peers as a source of Messages, but the grapevine’s informal structure can be a barrier to effective communication from the managerial point of view. Its grassroots structure gives it greater credibility in the minds of employees than information delivered through official channels, even when that information is false.Some downsides of the office grapevine are that gossip offers politically minded insiders a powerful tool for disseminating communication (and self-promoting miscommunications) within an organization. In addition, the grapevine lacks a specific Sender, which can create a sense of distrust among employees—who is at the root of the gossip network? When the news is volatile, suspicions may arise as to the person or persons behind the Message. Managers who understand the grapevine’s power can use it to send and receive Messages of their own. They also decrease the grapevine’s power by sending official Messages quickly and accurately, should big news arise.SemanticsSemantics is the study of meaning in communication. Words can mean different things to different people, or they might not mean anything to another person. For example, companies often have their own acronyms and buzzwords (called business jargon) that are clear to them but impenetrable to outsiders. For example, at IBM, GBS is focusing on BPTS, using expertise acquired from the PwC purchase (which had to be sold to avoid conflicts of interest in light of SOX) to fend other BPO providers and inroads by the Bangalore tiger. Does this make sense to you? If not, here’s the translation: IBM’s Global Business Services (GBS) division is focusing on offering companies Business Process Transformation Services (BPTS), using the expertise it acquired from purchasing the management consulting and technology services arm of PricewaterhouseCoopers (PwC), which had to sell the division because of the Sarbanes-Oxley Act (SOX, enacted in response to the major accounting scandals like the Enron). The added management expertise puts it above business process outsourcing (BPO) vendors who focus more on automating processes rather than transforming and improving them. Chief among these BPO competitors is Wipro, often called the “Bangalore tiger” because of its geographic origin and aggressive growth.Given the amount of Messages we send and receive every day, it makes sense that humans try to find shortcuts—a way to communicate things in code. In business, this code is known as jargon. Jargon is the language of specialized terms used by a group or profession. It is common shorthand among experts and if used sensibly can be a quick and efficient way of communicating. Most jargon consists of unfamiliar terms, abstract words, nonexistent words, acronyms, and abbreviations, with an occasional euphemism thrown in for good measure. Every profession, trade, and organization has its own specialized terms.Wright, N. Keep it jargon-free. Retrieved July 2, 2008, from http://www.plainlanguage.gov/howto/wordsuggestions/jargonfree.cfm. At first glance, jargon seems like a good thing—a quicker way to send an effective communication, the way text message abbreviations can send common messages in a shorter, yet understandable way. But that’s not always how things happen. Jargon can be an obstacle to effective communication, causing listeners to tune out or fostering ill-feeling between partners in a conversation. When jargon rules the day, the Message can get obscured.A key question to ask before using jargon is, “Who is the Receiver of my Message?” If you are a specialist speaking to another specialist in your area, jargon may be the best way to send a message while forging a professional bond—similar to the way best friends can communicate in code. For example, an information technology (IT) systems analyst communicating with another IT employee may use jargon as a way of sharing information in a way that reinforces the pair’s shared knowledge. But that same conversation should be held in standard English, free of jargon, when communicating with staff members outside the IT group.Online Follow-UpHere is a Web site of 80 buzz words in business:http://www.amanet.org/movingahead/editorial2002_2003/nov03_80buzzwords.htmand a discussion of why slang is a problem:http://sbinfocanada.about.com/od/speakforsuccesscourse/a/speechlesson5.htm.Gender DifferencesGender differences in communication have been documented by a number of experts, including linguistics professor Deborah Tannen in her best-selling book You Just Don’t Understand: Women and Men in Conversation.Tannen, D. (1991). You just don’t understand: Women and men in conversation. New York: Ballantine. Men and women work together every day. But their different styles of communication can sometimes work against them. Generally speaking, women like to ask questions before starting a project, while men tend to “jump right in.” A male manager who’s unaware of how many women communicate their readiness to work may misperceive a ready employee as not ready.Another difference that has been noticed is that men often speak in sports metaphors, while many women use their home as a starting place for analogies. Women who believe men are “only talking about the game” may be missing out on a chance to participate in a division’s strategy and opportunities for teamwork and “rallying the troops” for success.Krotz, J. L. (n.d.). 6 tips for bridging the communication gap. Retrieved July 2, 2008, from Microsoft Small Business Center Web site, http://www.microsoft.com/smallbusiness/resources/management/leadership-training/women-vs-men-6-tips-for-bridging-the-communication-gap.aspx.“It is important to promote the best possible communication between men and women in the workplace,” notes gender policy adviser Dee Norton, who provided the above example. “As we move between the male and female cultures, we sometimes have to change how we behave (speak the language of the other gender) to gain the best results from the situation. Clearly, successful organizations of the future are going to have leaders and team members who understand, respect and apply the rules of gender culture appropriately.”Norton, D. Gender and communication—finding common ground. Retrieved July 2, 2008, from http://www.uscg.mil/leadership/gender.htm.Being aware of these gender differences can be the first step in learning to work with them, as opposed to around them. For example, keep in mind that men tend to focus more on competition, data, and orders in their communications, while women tend to focus more on cooperation, intuition, and requests. Both styles can be effective in the right situations, but understanding the differences is a first step in avoiding misunderstandings based on them.Differences in meaning often exist between the Sender and Receiver. “Mean what you say, and say what you mean.” It’s an easy thing to say. But in business, what do those words mean? Different words mean different things to different people. Age, education, and cultural background are all factors that influence how a person interprets words. The less we consider our audience, the greater our chances of miscommunication will be. When communication occurs in the cross-cultural context, extra caution is needed given that different words will be interpreted differently across cultures and different cultures have different norms regarding nonverbal communication. Eliminating jargon is one way of ensuring that our words will convey real-world concepts to others. Speaking to our audience, as opposed to about ourselves, is another. Nonverbal Messages can also have different meanings.Table 12.1 Gestures Around the GlobeFigure 12.81. “V” for victory. Use this gesture with caution! While in North America it signs victory or peace, in England and Australia it means something closer to “take this!”Figure 12.92. The “OK” gesture. While in North America it means things are going well, in France it means a person is thought to be worthless, in Japan it refers to money, and in Brazil, Russia, and Germany it means something really not appropriate for the workplace.Figure 12.103. The “thumbs up” means one in Germany, five in Japan, but a good job in North America. This can lead to confusion.Figure 12.114. “Hook ‘em horns.” This University of Texas rallying call looks like the horns of a bull. However, in Italy it means you are being tricked, while in Brazil and Venezuela it means you are warding off evil.Figure 12.125. Waving your hand. In much of Europe waving your hand indicates a disagreement. However, in North America it is routinely used as a way to signal greetings or to get someone’s attention.Adapted from information in Axtell, R. E. (1998). Gestures: The do’s and taboos of body language around the world. New York: John Wiley.Managers who speak about “long-term goals and profits” to a staff that has received scant raises may find their core Message (“You’re doing a great job—and that benefits the folks in charge!”) has infuriated the group they hoped to inspire. Instead, managers who recognize the “contributions” of their staff and confirm that this work is contributing to company goals in ways “that will benefit the source of our success—our employees as well as executives,” will find their core Message (“You’re doing a great job—we really value your work”) is received as opposed to being misinterpreted.Biased language can offend or stereotype others on the basis of their personal or group affiliation. The figure below provides a list of words that have the potential to be offensive in the left-hand column. The right-hand column provides more neutral words that you can use instead.Adapted from information in Ashcraft, K., & Mumby, D. K. (2003). Reworking gender. Thousand Oaks, CA, Sage; Miller, C., & Swift, K. (1980). The handbook of nonsexist writing. New York: Lippincott & Crowell; Procter, M. (2007, September 11). Unbiased language. Retrieved July 2, 2008, from http://www.utoronto.ca/writing/unbias.html.Figure 12.13 Avoiding Biased LanguageEffective communication is clear, factual, and goal-oriented. It is also respectful. Referring to a person by one adjective (a brain, a diabetic, an invalid) reduces that person to that one characteristic. Language that belittles or stereotypes a person poisons the communication process. Language that insults an individual or group based on age, ethnicity, sexual preference, or political beliefs violates public and private standards of decency, ranging from civil rights to corporate regulations.The effort to create a neutral set of terms to refer to heritage and preferences has resulted in a debate over the nature of “political correctness.” Proponents of political correctness see it as a way to defuse the volatile nature of words that stereotyped groups and individuals in the past. Critics of political correctness see its vocabulary as stilted and needlessly cautious.Many companies offer new employees written guides on standards of speech and conduct. These guides, augmented by common sense and courtesy, are solid starting points for effective, respectful workplace communication. Tips for appropriate workplace speech include but are not limited toAlternating the use of “he” and “she” when referring to people in general.Relying on human resources–generated guidelines.Remembering that terms that feel respectful or comfortable to us may not be comfortable or respectful to others.Poor Listening and Active ListeningFormer Chrysler CEO Lee Iacocca lamented, “I only wish I could find an institute that teaches people how to listen. After all, a good manager needs to listen at least as much as he needs to talk.”Iacocca, L., & Novak, W. (1984). Iacocca: An autobiography. New York: Bantam Press. Research shows that listening skills are related to promotions.Sypher, B. D., Bostrom, R. N., & Seibert, J. H. (1989). Listening, communication abilities, and success at work. Journal of Business Communication, 26, 293–303. A Sender may strive to deliver a Message clearly. But the Receiver’s ability to listen effectively is equally vital to effective communication. The average worker spends 55% of her workdays listening. Managers listen up to 70% each day. But listening doesn’t lead to understanding in every case. Listening takes practice, skill, and concentration.According to University of San Diego professor Phillip Hunsaker, “The consequences of poor listening are lower employee productivity, missed sales, unhappy customers, and billions of dollars of increased cost and lost profits. Poor listening is a factor in low employee morale and increased turnover because employees do not feel their managers listen to their needs, suggestions, or complaints.”Alessandra, T., Garner, H., & Hunsaker, P. L. (1993). Communicating at work. New York: Simon & Schuster. Clearly, if you hope to have a successful career in management, it behooves you to learn to be a good listener.Alan Gulick, a Starbucks spokesperson, puts better listening to work in pursuit of better profits. If every Starbucks employee misheard one $10 order each day, he calculates, their errors would cost the company a billion dollars annually. To teach its employees to listen, Starbucks created a code that helps employees taking orders hear the size, flavor, and use of milk or decaf coffee. The person making the drink echoes the order aloud.How can you improve your listening skills? The Roman philosopher Cicero said, “Silence is one of the great arts of conversation.” How often have we been in conversation with someone else where we are not really listening but itching to convey our portion? This behavior is known as “rehearsing.” It suggests the Receiver has no intention of considering the Sender’s Message and intends to respond to an earlier point instead. Clearly, rehearsing is an impediment to the communication process. Effective communication relies on another kind of listening: active listening.Active listening can be defined as giving full attention to what other people are saying, taking time to understand the points being made, asking questions as appropriate, and not interrupting at inappropriate times.O*NET Resource Center, the nation’s primary source of occupational information. Retrieved July 2, 2008, from http://online.onetcenter.org/skills.Active listening creates a real-time relationship between the Sender and the Receiver by acknowledging the content and receipt of a Message. As we’ve seen in the Starbucks example, repeating and confirming a Message’s content offers a way to confirm that the correct content is flowing between colleagues. The process creates a bond between coworkers while increasing the flow and accuracy of messaging.Carl Rogers, founder of the “person-centered” approach to psychology, formulated five rules for active listening:Listen for message contentListen for feelingsRespond to feelingsNote all cuesParaphrase and restateThe good news is that listening is a skill that can be learned.Brownell, J. (1990). Perceptions of effective listeners: A management study. Journal of Business Communications, 27, 401–415. The first step is to decide that we want to listen. Casting aside distractions, such as by reducing background or internal noise, is critical. The Receiver takes in the Sender’s Message silently, without speaking. Second, throughout the conversation, show the speaker that you’re listening. You can do this nonverbally by nodding your head and keeping your attention focused on the speaker. You can also do it verbally, by saying things like, “Yes,” “That’s interesting,” or other such verbal cues. As you’re listening, pay attention to the Sender’s body language for additional cues about how they’re feeling. Interestingly, silence plays a major role in active listening. During active listening, we are trying to understand what has been said, and in silence, we can consider the implications. We can’t consider information and reply to it at the same time. That’s where the power of silence comes into play. Finally, if anything is not clear to you, ask questions. Confirm that you’ve heard the message accurately, by repeating back a crucial piece like, “Great, I’ll see you at 2 p.m. in my office.” At the end of the conversation, a “thank you” from both parties is an optional but highly effective way of acknowledging each other’s teamwork.In summary, active listening creates a more dynamic relationship between a Receiver and a Sender. It strengthens personal investment in the information being shared. It also forges healthy working relationships among colleagues by making Speakers and Listeners equally valued members of the communication process.KEY TAKEAWAYMany barriers to effective communication exist. Examples include filtering, selective perception, information overload, emotional disconnects, lack of source familiarity or credibility, workplace gossip, semantics, gender differences, differences in meaning between Sender and Receiver, and biased language. The Receiver can enhance the probability of effective communication by engaging in active listening, which involves (1) giving one’s full attention to the Sender and (2) checking for understanding by repeating the essence of the Message back to the Sender.EXERCISESMost people are poor listeners. Do you agree or disagree with this statement? Please support your position.Please share an example of how differences in shared meaning have affected you.Give an example of selective perception.Do you use jargon at or in your classes? If so, do you think it helps or hampers communication? Why or why not?In your experience, how is silence used in communication? How does your experience compare with the recommended use of silence in active listening?12.4 Different Types of CommunicationLEARNING OBJECTIVESUnderstand the features and advantages of verbal communication.Understand the features and advantages of written communication.Understand the features of nonverbal communication and how it interacts with verbal and written communications.Communication can be categorized into three basic types: (1) verbal communication, in which you listen to a person to understand their meaning; (2) written communication, in which you read their meaning; and (3) nonverbal communication, in which you observe a person and infer meaning. Each has its own advantages, disadvantages, and even pitfalls.Verbal CommunicationVerbal communications in business take place over the phone or in person. The medium of the Message is oral. Let’s return to our printer cartridge example. This time, the Message is being conveyed from the Sender (the Manager) to the Receiver (an employee named Bill) by telephone. We’ve already seen how the Manager’s request to Bill (“We need to buy more printer toner cartridges”) can go awry. Now let’s look at how the same Message can travel successfully from Sender to Receiver.Manager (speaking on the phone): “Good morning, Bill!”(By using the employee’s name, the manager is establishing a clear, personal link to the Receiver.)Manager: “Your division’s numbers are looking great.”(The Manager’s recognition of Bill’s role in a winning team further personalizes and emotionalizes the conversation.)Manager: “Our next step is to order more printer toner cartridges. Could you place an order for 1,000 printer toner cartridges with Jones Computer Supplies? Our budget for this purchase is $30,000, and the cartridges need to be here by Wednesday afternoon.”(The Manager breaks down the task into several steps. Each step consists of a specific task, time frame, quantity, or goal.)Bill: “Sure thing! I’ll call Jones Computer Supplies and order 1,000 more printer toner cartridges, not exceeding a total of $30,000, to be here by Wednesday afternoon.”(Bill, who is good at active listening, repeats what he has heard. This is the Feedback portion of the communication, and verbal communication has the advantage of offering opportunities for immediate feedback. Feedback helps Bill to recognize any confusion he may have had hearing the manager’s Message. Feedback also helps the manager to tell whether she has communicated the Message correctly.)StorytellingStorytelling has been shown to be an effective form of verbal communication; it serves an important organizational function by helping to construct common meanings for individuals within the organization. Stories can help clarify key values and help demonstrate how things are done within an organization, and story frequency, strength, and tone are related to higher organizational commitment.McCarthy, J. F. (2008). Short stories at work: Storytelling as an indicator of organizational commitment. Group & Organization Management, 33, 163–193. The quality of the stories entrepreneurs tell is related to their ability to secure capital for their firms.Martens, M. L., Jennings, J. E., & Devereaux, J. P. (2007). Do the stories they tell get them the money they need? The role of entrepreneurial narratives in resource acquisition. Academy of Management Journal, 50, 1107–1132. Stories can serve to reinforce and perpetuate an organization’s culture, part of the organizing P-O-L-C function.Crucial ConversationsWhile the process may be the same, high-stakes communications require more planning, reflection, and skill than normal day-to-day interactions at work. Examples of high-stakes communication events include asking for a raise or presenting a business plan to a venture capitalist. In addition to these events, there are also many times in our professional lives when we have crucial conversations—discussions where not only the stakes are high but also where opinions vary and emotions run strong.Patterson, K., Grenny, J., McMillan, R., & Switzler, A. (2002). Crucial conversations: Tools for talking when stakes are high. New York: McGraw-Hill. One of the most consistent recommendations from communications experts is to work toward using “and” instead of “but” as you communicate under these circumstances. In addition, be aware of your communication style and practice flexibility; it is under stressful situations that communication styles can become the most rigid.Written CommunicationIn contrast to verbal communications, written business communications are printed messages. Examples of written communications include memos, proposals, e-mails, letters, training manuals, and operating policies. They may be printed on paper, handwritten, or appear on the screen. Normally, a verbal communication takes place in real time. Written communication, by contrast, can be constructed over a longer period of time. Written communication is often asynchronous (occurring at different times). That is, the Sender can write a Message that the Receiver can read at any time, unlike a conversation that is carried on in real time. A written communication can also be read by many people (such as all employees in a department or all customers). It’s a “one-to-many” communication, as opposed to a one-to-one verbal conversation. There are exceptions, of course: a voicemail is an oral Message that is asynchronous. Conference calls and speeches are oral one-to-many communications, and e-mails may have only one recipient or many.Figure 12.14Communication mediums have come a long way since Alexander Graham Bell’s original telephone.Source: http://en.wikipedia.org/wiki/image:cnam-img_0564.jpgMost jobs involve some degree of writing. According to the National Commission on Writing, 67% of salaried employees in large American companies and professional state employees have some writing responsibility. Half of responding companies reported that they take writing into consideration when hiring professional employees, and 91% always take writing into account when hiring (for any position, not just professional-level ones).Flink, H. (2007, March). Tell it like it is: Essential communication skills for engineers. Industrial Engineer, 39, 44–49.Luckily, it is possible to learn to write clearly. Here are some tips on writing well. Thomas Jefferson summed up the rules of writing well with this idea “Don’t use two words when one will do.” One of the oldest myths in business is that writing more will make us sound more important; in fact, the opposite is true. Leaders who can communicate simply and clearly project a stronger image than those who write a lot but say nothing.Nonverbal CommunicationWhat you say is a vital part of any communication. But what you don’t say can be even more important. Research also shows that 55% of in-person communication comes from nonverbal cues like facial expressions, body stance, and tone of voice. According to one study, only 7% of a Receiver’s comprehension of a Message is based on the Sender’s actual words; 38% is based on paralanguage (the tone, pace, and volume of speech), and 55% is based on nonverbal cues (body language).Mehrabian, A. (1981). Silent messages. New York: Wadsworth.Research shows that nonverbal cues can also affect whether you get a job offer. Judges examining videotapes of actual applicants were able to assess the social skills of job candidates with the sound turned off. They watched the rate of gesturing, time spent talking, and formality of dress to determine which candidates would be the most successful socially on the job.Gifford, R., Ng, C. F., & Wilkinson, M. (1985). Nonverbal cues in the employment interview: Links between applicant qualities and interviewer judgments. Journal of Applied Psychology, 70, 729–736. For this reason, it is important to consider how we appear in business as well as what we say. The muscles of our faces convey our emotions. We can send a silent message without saying a word. A change in facial expression can change our emotional state. Before an interview, for example, if we focus on feeling confident, our face will convey that confidence to an interviewer. Adopting a smile (even if we’re feeling stressed) can reduce the body’s stress levels.To be effective communicators, we need to align our body language, appearance, and tone with the words we’re trying to convey. Research shows that when individuals are lying, they are more likely to blink more frequently, shift their weight, and shrug.Siegman, A. W. (1985). Multichannel integrations of nonverbal behavior. Hillsdale, NJ: Lawrence Erlbaum.Listen Up and Learn More!To learn more about facial language from facial recognition expert Patrician McCarthy as she speaks with Senior Editor Suzanne Woolley at Business Week, view the online interview at http://feedroom.businessweek.com/index.jsp?fr_chl=1e2ee1e43e4a5402a862f79a7941fa625f5b0744.Another element of nonverbal communication is tone. A different tone can change the perceived meaning of a message. Table 12.2 "Don’t Use That Tone with Me!" demonstrates how clearly this can be true, whether in verbal or written communication. If we simply read these words without the added emphasis, we would be left to wonder, but the emphasis shows us how the tone conveys a great deal of information. Now you can see how changing one’s tone of voice or writing can incite or defuse a misunderstanding.Table 12.2 Don’t Use That Tone with Me!Placement of the emphasisWhat it meansI did not tell John you were late.Someone else told John you were late.I did not tell John you were late.This did not happen.I did not tell John you were late.I may have implied it.I did not tell John you were late.But maybe I told Sharon and José.I did not tell John you were late.I was talking about someone else.I did not tell John you were late.I told him you still are late.I did not tell John you were late.I told him you were attending another meeting.Changing your tone can dramatically change your meaning.Source: Based on ideas in Kiely, M. (1993, October). When “no” means “yes.” Marketing, 7–9.For an example of the importance of nonverbal communication, imagine that you’re a customer interested in opening a new bank account. At one bank, the bank officer is dressed neatly. She looks you in the eye when she speaks. Her tone is friendly. Her words are easy to understand, yet she sounds professional. “Thank you for considering Bank of the East Coast. We appreciate this opportunity and would love to explore ways that we can work together to help your business grow,” she says with a friendly smile.At the second bank, the bank officer’s tie is stained. He looks over your head and down at his desk as he speaks. He shifts in his seat and fidgets with his hands. His words say, “Thank you for considering Bank of the West Coast. We appreciate this opportunity and would love to explore ways that we can work together to help your business grow,” but he mumbles, and his voice conveys no enthusiasm or warmth.Which bank would you choose?The speaker’s body language must match his or her words. If a Sender’s words and body language don’t match—if a Sender smiles while telling a sad tale, for example—the mismatch between verbal and nonverbal cues can cause a Receiver to actively dislike the Sender.Here are a few examples of nonverbal cues that can support or detract from a Sender’s Message.Body LanguageA simple rule of thumb is that simplicity, directness, and warmth convey sincerity. And sincerity is key to effective communication. A firm handshake, given with a warm, dry hand, is a great way to establish trust. A weak, clammy handshake conveys a lack of trustworthiness. Gnawing one’s lip conveys uncertainty. A direct smile conveys confidence.Eye ContactIn business, the style and duration of eye contact considered appropriate vary greatly across cultures. In the United States, looking someone in the eye (for about a second) is considered a sign of trustworthiness.Facial ExpressionsThe human face can produce thousands of different expressions. These expressions have been decoded by experts as corresponding to hundreds of different emotional states.Ekman, P., Friesen, W. V., & Hager, J. C. The facial action coding system (FACS). Retrieved July 2, 2008, from http://face-and-emotion.com/dataface/facs/manual. Our faces convey basic information to the outside world. Happiness is associated with an upturned mouth and slightly closed eyes; fear with an open mouth and wide-eyed stare. Flitting (“shifty”) eyes and pursed lips convey a lack of trustworthiness. The effect of facial expressions in conversation is instantaneous. Our brains may register them as “a feeling” about someone’s character.PostureThe position of our body relative to a chair or another person is another powerful silent messenger that conveys interest, aloofness, professionalism—or lack thereof. Head up, back straight (but not rigid) implies an upright character. In interview situations, experts advise mirroring an interviewer’s tendency to lean in and settle back in her seat. The subtle repetition of the other person’s posture conveys that we are listening and responding.TouchThe meaning of a simple touch differs between individuals, genders, and cultures. In Mexico, when doing business, men may find themselves being grasped on the arm by another man. To pull away is seen as rude. In Indonesia, to touch anyone on the head or touch anything with one’s foot is considered highly offensive. In the Far East, according to business etiquette writer Nazir Daud, “it is considered impolite for a woman to shake a man’s hand.”Daud, N. (n.d.). Business etiquette. Retrieved July 2, 2008, from http://ezinearticles.com/?Business-Etiquette---Shaking-Hands-around-the-World&id=746227. Americans, as we have noted, place great value in a firm handshake. But handshaking as a competitive sport (“the bone-crusher”) can come off as needlessly aggressive, at home and abroad.SpaceAnthropologist Edward T. Hall coined the term proxemics to denote the different kinds of distance that occur between people. These distances vary between cultures. The figure below outlines the basic proxemics of everyday life and their meaning:Hall, E. T. (1966). The hidden dimension. New York: Doubleday.Figure 12.15 Interpersonal DistancesStanding too far away from a colleague (such as a public speaking distance of more than seven feet) or too close to a colleague (intimate distance for embracing) can thwart an effective verbal communication in business.KEY TAKEAWAYTypes of communication include verbal, written, and nonverbal. Verbal communications have the advantage of immediate feedback, are best for conveying emotions, and can involve storytelling and crucial conversations. Written communications have the advantage of asynchronicity, of reaching many readers, and are best for conveying information. Both verbal and written communications convey nonverbal messages through tone; verbal communications are also colored by body language, eye contact, facial expression, posture, touch, and space.EXERCISESWhen you see a memo or e-mail full of typos, poor grammar, or incomplete sentences, how do you react? Does it affect your perception of the Sender? Why or why not?How aware of your own body language are you? Has your body language ever gotten you into trouble when you were communicating with someone?If the meaning behind verbal communication is only 7% words, what does this imply for written communication?12.5 Communication ChannelsLEARNING OBJECTIVESUnderstand how communication channels affect communication.Recognize different communication directions within organizations.The channel, or medium, used to communicate a message affects how accurately the message will be received. Verbal, written, and nonverbal communications have different strengths and weaknesses. In business, the decision to communicate verbally or in written form can be a powerful one. In addition, a smart manager is aware of the nonverbal messages conveyed by either type of communication—as noted earlier, only 7% of verbal communication comes from the words themselves.Information RichnessChannels vary in their information richness. Information-rich channels convey more nonverbal information. As you may be able to guess from our earlier discussion of verbal and written communications, verbal communications are richer than written ones. Research shows that effective managers tend to use more information-rich communication channels than less effective managers.Allen, D. G., & Griffeth, R. W. (1997). Vertical and lateral information processing; Fulk, J., & Boyd, B. (1991). Emerging theories of communication in organizations. Journal of Management, 17, 407–446; Yates, J., & Orlikowski, W. J. (1992). Genres of organizational communication: A structurational approach to studying communication and media. Academy of Management Review, 17, 299–326. The figure below illustrates the information richness of different information channels.Figure 12.16 Information RichnessSource: Adapted from information in Daft, R. L., & Lenge, R. H. (1984). Information richness: A new approach to managerial behavior and organizational design. In B. Staw & L. Cummings (Eds.), Research in organizational behavior (Vol. 6, pp. 191–233). Greenwich, CT: JAI Press; and Lengel, R. H., & Daft, D. L. (1988). The selection of communication media as an executive skill. Academy of Management Executive, 11, 225–232.Like face-to-face and telephone conversation, videoconferencing has high information richness because Receivers and Senders can see or hear beyond just the words—they can see the Sender’s body language or hear the tone of their voice. Handheld devices, blogs, and written letters and memos offer medium-rich channels because they convey words and pictures/photos. Formal written documents, such as legal documents, and spreadsheets, such as the division’s budget, convey the least richness because the format is often rigid and standardized. As a result, nuance is lost.In business, the decision to communicate verbally or in written form can be powerful. In addition, a smart manager is aware of the nonverbal messages conveyed by either type of communication—as noted earlier, only 7% of a verbal communication comes from the words themselves.When determining whether to communicate verbally or in writing, ask yourself: Do I want to convey facts or feelings? Verbal communications are a better way to convey feelings. Written communications do a better job of conveying facts.Picture a manager making a speech to a team of 20 employees. The manager is speaking at a normal pace. The employees appear interested. But how much information is being transmitted? Not as much as the speaker believes! Humans listen much faster than they speak. The average public speaker communicates at a speed of about 125 words a minute. And that pace sounds fine to the audience. (In fact, anything faster than that probably would sound weird. To put that figure in perspective, someone having an excited conversation speaks at about 150 words a minute.) On the basis of these numbers, we could assume that the employees have more than enough time to take in each word the manager delivers. And that’s the problem. The average person in the audience can hear 400–500 words a minute.Lee, D., & Hatesohl, D. Listening: Our most used communication skill. University of Missouri. Retrieved July 2, 2008, from http://extension.missouri.edu/explore/comm/cm0150.htm. The audience has more than enough time to hear. As a result, they will each be processing many thoughts of their own, on totally different subjects, while the manager is speaking. As this example demonstrates, oral communication is an inherently flawed medium for conveying specific facts. Listeners’ minds wander! It’s nothing personal—in fact, it’s totally physical. In business, once we understand this fact, we can make more intelligent communication choices based on the kind of information we want to convey.The key to effective communication is to match the communication channel with the goal of the communication.Barry, B., & Fulmer, I. S. (2004). The medium and the Message: The adaptive use of communication media in dyadic influence. Academy of Management Review, 29, 272–292. For example, written media may be a better choice when the Sender wants a record of the content, has less urgency for a response, is physically separated from the Receiver, doesn’t require a lot of feedback from the Receiver, or the Message is complicated and may take some time to understand. Oral communication, however, makes more sense when the Sender is conveying a sensitive or emotional Message, needs feedback immediately, and does not need a permanent record of the conversation. Use the guide provided for deciding when to use written versus verbal communication.Figure 12.17 Guide for When to Use Written Versus Verbal CommunicationBusiness Use of E-MailThe growth of e-mail has been spectacular, but it has also created challenges in managing information and an ever-increasing speed of doing business. Over 100 million adults in the United States use e-mail regularly (at least once a day).Taylor, C. (2002, June 10). 12 steps for email addicts. Time.com. Retrieved July 2, 2008, from http://www.time.com/time/magazine/article/0,9171,1002621,00.html.Internet users around the world send an estimated 60 billion e-mails every day, and many of those are spam or scam attempts.60 Billion emails sent daily worldwide. (2006, April 26). Retrieved July 2, 2008, from CNET.UK: That makes e-mail the second most popular medium of communication worldwide, second only to voice. A 2005 study estimated that less than 1% of all written human communications even reached paper—and we can imagine that this percentage has gone down even further since then.http://www.sims.berkeley.edu/research/projects/how-much-info/index.htm, as cited in David K. Isom. (2005, October 19). Electronic discovery: New power, new risks. Retrieved July 2, 2008, from http://utahbar.org/barjournal2000/html/november_2003_2.html. To combat the overuse of e-mail, companies such as Intel have even instituted “no e-mail Fridays” where all communication is done via other communication channels. Learning to be more effective in your e-mail communications is an important skill. To learn more, check out the business e-mail do’s and don’ts.Business E-Mail Do’s and Don’tsDON’T send or forward chain e-mails.DON’T put anything in an e-mail that you don’t want the world to see.DON’T write a Message in capital letters—this is the equivalent of SHOUTING.DON’T routinely “cc” everyone all the time. Reducing inbox clutter is a great way to increase communication.DON’T hit Send until you spell-check your e-mail.DO use a subject line that summarizes your Message, adjusting it as the Message changes over time.DO make your request in the first line of your e-mail. (And if that’s all you need to say, stop there!)DO end your e-mail with a brief sign-off such as, “Thank you,” followed by your name and contact information.DO think of a work e-mail as a binding communication.DO let others know if you’ve received an e-mail in error.Source: Adapted from information in Leland, K., & Bailey, K. (2000). Customer service for dummies. New York: Wiley; Information Technology Services (1997). Top 10 email dos and top ten email don’ts. Retrieved July 1, 2008, from the University of Illinois at Chicago Medical Center Web site: http://www.uic.edu/hsc/uicmc/its/customers/email-tips.htm; Kawasaki, G. (2006, February 3). The effective emailer. Retrieved July 1, 2008, from How to Change the World Web site: http://blog.guykawasaki.com/2006/02/the_effective_e.html.An important, although often ignored, rule when communicating emotional information is that e-mail’s lack of richness can be your loss. As we saw in the chart above, e-mail is a medium-rich channel. It can convey facts quickly. But when it comes to emotion, e-mail’s flaws make it far less desirable a choice than oral communication—the 55% of nonverbal cues that make a conversation comprehensible to a listener are missing. E-mail readers don’t pick up on sarcasm and other tonal aspects of writing as much as the writer believes they will, researchers note in a recent study.Kruger, J. (2005). Egocentrism over email: Can we communicate as well as we think? Journal of Personality and Social Psychology, 89, 925–936.The Sender may believe she has included these emotional signifiers in her Message. But, with words alone, those signifiers are not there. This gap between the form and content of e-mail inspired the rise of emoticons—symbols that offer clues to the emotional side of the words in each Message. Generally speaking, however, emoticons are not considered professional in business communication.You might feel uncomfortable conveying an emotionally laden message verbally, especially when the message contains unwanted news. Sending an e-mail to your staff that there will be no bonuses this year may seem easier than breaking the bad news face-to-face, but that doesn’t mean that e-mail is an effective or appropriate way to deliver this kind of news. When the Message is emotional, the Sender should use verbal communication. Indeed, a good rule of thumb is that the more emotionally laden messages require more thought in the choice of channel and how they are communicated.Direction of Communication Within OrganizationsInformation can move horizontally, from a Sender to a Receiver, as we’ve seen. It can also move vertically, down from top management or up from the front line. Information can also move diagonally between and among levels of an organization, such as a Message from a customer service representative up to a manager in the manufacturing department, or a Message from the chief financial officer sent down to all department heads.Figure 12.18Communication flows in many different directions within an organization.There is a chance for these arrows to go awry, of course. As Mihaly Csikszentmihalyi, author of best-selling books such as Flow, has noted, “In large organizations the dilution of information as it passes up and down the hierarchy, and horizontally across departments, can undermine the effort to focus on common goals.” Managers need to keep this in mind when they make organization design decisions as part of the organizing function.The organizational status of the Sender can affect the Receiver’s attentiveness to the Message. For example, consider: A senior manager sends a memo to a production supervisor. The supervisor, who has a lower status within the organization, is likely to pay close attention to the Message. The same information, conveyed in the opposite direction, however, might not get the attention it deserves. The Message would be filtered by the senior manager’s perception of priorities and urgencies.Requests are just one kind of communication in business. Other communications, both verbal or written, may seek, give, or exchange information. Research shows that frequent communications with one’s supervisor is related to better job performance ratings and overall organizational performance.Snyder, R. A., & Morris, J. H. (1984). Organizational communication and performance. Journal of Applied Psychology, 69, 461–465; Kacmar, K. M., Witt, L. A., Zivnuska, S., & Guly, S. M. (2003). The interactive effect of leader-member exchange and communication frequency on performance ratings. Journal of Applied Psychology, 88, 764–772. Research also shows that lateral communication done between peers can influence important organizational outcomes such as turnover.Krackhardt, D., & Porter, L. W. (1986). The snowball effect: Turnover embedded in communication networks. Journal of Applied Psychology, 71, 50–55.Figure 12.19 Who Managers Spend Time Communicating with at WorkSource: Adapted from information in Luthans, F., & Larsen, J. K. (1986). How managers really communicate. Human Relations, 39, 161–178.External CommunicationsExternal communications deliver specific business messages to individuals outside an organization. They may announce changes in staff or strategy, earnings, and more. The goal of an external communication is to create a specific Message that the Receiver will understand and share with others. Examples of external communications include the following:Press ReleasesPublic relations professionals create external communications about a client’s product, services or practices for specific Receivers. These Receivers, it is hoped, will share the Message with others. In time, as the Message is passed along, it should appear to be independent of The Sender, creating the illusion of an independently generated consumer trend, public opinion, and so on.The Message of a public relations effort may be b2b (business to business), b2c (business to consumer), or media related. The Message can take different forms. Press releases try to convey a newsworthy message, real or manufactured. It may be constructed like a news item, inviting editors or reporters to reprint the Message in part, or as a whole, with or without acknowledgment of the Sender’s identity. Public relations campaigns create Messages over time, through contests, special events, trade shows, and media interviews in addition to press releases.AdsAdvertising places external business Messages before target Receivers through media buys. A media buy is a fee that is paid to a television network, Web site, or magazine by an advertiser for an on-air, site, or publication ad. The fee is based on the perceived value of the audience who watches, reads, or frequents the space where the ad will appear.In recent years, Receivers have begun to filter advertiser’s Messages, a phenomenon that is perceived to be the result of the large amount of ads the average person sees each day and a growing level of consumer wariness of paid Messaging. Advertisers, in turn, are trying to create alternative forms of advertising that Receivers won’t filter. The advertorial is one example of an external communication that combines the look of an article with the focused Message of an ad. Product placements in videos, movies, and games are other ways that advertisers strive to reach Receivers with commercial Messages.Web PagesA Web page’s external communication can combine elements of public relations, advertising, and editorial content, reaching Receivers on multiple levels and in multiple ways. Banner ads, blogs, and advertiser-driven “click-through” areas are just a few of the elements that allow a business to deliver a Message to a Receiver online. The perceived flexibility of online communications can impart a less formal (and, therefore, more believable) quality to an external communication. A Message relayed in a daily blog post will reach a Receiver differently than if it is delivered in an annual report, for example. The popularity and power of blogs is growing, with 11% of Fortune 500 companies having official blogs (up from 4% in 2005). In fact, blogs have become so important to some companies as Coca-Cola, Kodak, and Marriott that they have created official positions within their organizations titled “Chief Blogging Officer.”Chief blogging officer title catching on with corporations. (2008, May 1). Workforce Management News in Brief. Retrieved July 2, 2008, from http://www.workforce.com/section/00/article/25/50/77.html.The “real-time” quality of Web communications may appeal to Receivers who might filter out a traditional ad and public relations message because of its “prefab” quality. Despite their “spontaneous” feel, many online pages can be revisited in perpetuity. For this reason, clear and accurate external communications are as vital for online use as they are in traditional media.Customer CommunicationsCustomer communications can include letters, catalogs, direct mail, e-mails, text messages, and telemarketing messages. Some Receivers automatically filter bulk messages like these. Others will be receptive. The key to a successful external communication to customers is to convey a business message in a personally compelling way—dramatic news, a money-saving coupon, and so forth.KEY TAKEAWAYDifferent communication channels are more or less effective at transmitting different kinds of information. Some types of communication are information rich while others are medium rich. In addition, communications flow in different directions within organizations. A major internal communication channel is e-mail, which is convenient but needs to be handled carefuly. External communication channels include PR/press releases, ads, Web pages, and customer communications such as letters and catalogs.EXERCISESHow could you use your knowledge of communication richness to be more effective in your own communications?What are the three biggest advantages and disadvantages you see regarding technology and communications?Explain the difference between internal and external communications in an organization, giving examples of each.12.6 Developing Your Personal Communication SkillsLEARNING OBJECTIVESLearn how to improve your own listening habits.Learn how to handle personal communications in a career-friendly manner.Learn what communication freezers are and how to avoid them.By being sensitive to the errors outlined in this chapter and adopting active listening skills, you may increase your communication effectiveness, increasing your ability to carry out the managerial functions of planning, organizing, leading, and controlling. The following are additional tools for helping you increase your communication effectiveness.Ten Ways to Improve Your Listening HabitsStart by stopping. Take a moment to inhale and exhale quietly before you begin to listen. Your job as a listener is to receive information openly and accurately.Don’t worry about what you’ll say when the time comes. Silence can be a beautiful thing.Join the Sender’s team. When she pauses, summarize what you believe she has said. “What I’m hearing is that we need to focus on marketing as well as sales. Is that correct?” Be attentive to physical as well as verbal communications. “I hear you saying that we should focus on marketing. But the way you’re shaking your head tells me the idea may not really appeal to you—is that right?”Don’t multitask while listening. Listening is a full-time job. It’s tempting to multitask when you and the Sender are in different places, but doing that is counterproductive. The human mind can only focus on one thing at a time. Listening with only half your brain increases the chances that you’ll have questions later, requiring more of the Speaker’s time. (And when the speaker is in the same room, multitasking signals a disinterest that is considered rude.)Try to empathize with the Sender’s point of view. You don’t have to agree; but can you find common ground?Confused? Ask questions. There’s nothing wrong with admitting you haven’t understood the Sender’s point. You may even help the Sender clarify the Message.Establish eye contact. Making eye contact with the speaker (if appropriate for the culture) is important.What is the goal of this communication? Ask yourself this question at different points during the communication to keep the information flow on track. Be polite. Differences in opinion can be the starting point of consensus.It’s great to be surprised. Listen with an open mind, not just for what you want to hear.Pay attention to what is not said. Does the Sender’s body language seem to contradict her Message? If so, clarification may be in order.Adapted from information in Barrett, D. J. (2006). Leadership communication. New York: McGraw-Hill/Irwin; Improving verbal skills. Retrieved July 2, 2008, from http://www.itstime.com/aug97.htm; Ten tips: Active Listening from Communication at work. (2007, June 4). Retrieved July 2, 2008, from http://communication.atwork-network.com/2007/06/04/ten-tips-active-listening.Career-Friendly CommunicationsCommunication can occur without your even realizing it. Consider the following: Is your e-mail name professional? The typical convention for business e-mail contains some form of your name. While an e-mail name like “LazyGirl” or “DeathMonkey” may be fine for chatting online with your friends, they may send the wrong signal to individuals you e-mail such as professors and prospective employers.Is your outgoing voice mail greeting professional? If not, change it. Faculty and prospective recruiters will draw certain conclusions if, upon calling you, they hear a message that screams, “Party, party, party!”Do you have a “private” social networking Web site on MySpace.com, Facebook.com, or Xanga.com? If so, consider what it says about you to employers or clients. If it is information you wouldn’t share at work, it probably shouldn’t be there.Googled yourself lately? If not, you probably should. Potential employers have begun searching the Web as part of background checking and you should be aware of what’s out there about you.Communication FreezersCommunication freezers put an end to effective communication by making the Receiver feel judged or defensive. Typical communication stoppers include critizing, blaming, ordering, judging, or shaming the other person. The following are some examples of things to avoid saying:Source: Adapted from information in Tramel, M., & Reynolds, H. (1981). Executive leadership. Englewood Cliffs, NJ: Prentice Hall; Saltman, D., & O’Dea, N. (n.d.). Conflict management workshop powerpoint presentation. Retrieved July 1, 2008, from http://www.nswrdn.com.au/client_images/6806.PDF; Communication stoppers. Retrieved July 1, 2008, from Mental Health Today Web site: http://www.mental-health-today.com/Healing/communicationstop.htm.Telling people what to do:“You must…”“You cannot…”Threatening with “or else” implied:“You had better…”“If you don’t…”Making suggestions or telling other people what they ought to do:“You should…”“It’s your responsibility to…”Attempting to educate the other person:“Let me give you the facts.”“Experience tells us that…”Judging the other person negatively:“You’re not thinking straight.”“You’re wrong.”Giving insincere praise:“You have so much potential.”“I know you can do better than this.”Psychoanalyzing the other person:“You’re jealous.”“You have problems with authority.”Making light of the other person’s problems by generalizing:“Things will get better.”“Behind every cloud is a silver lining.”Asking excessive or inappropriate questions:“Why did you do that?”“Who has influenced you?”Making light of the problem by kidding:“Think about the positive side.”“You think you’ve got problems!”KEY TAKEAWAYBy practicing the skills associated with active listening, you can become more effective in your personal and professional relationships. Managing your online communications appropriately can also help you avoid career pitfalls. Finally, be aware of the types of remarks that freeze communication and try not to use them.EXERCISESHow can you assess if you are engaging in active listening?How does it feel when someone does not seem to be listening to you?Some companies have MySpace pages where employees can mingle and share ideas and information. Do you think this practice is a good idea? Why or why not?What advice would you give to someone who is going to become a first time manager in terms of communication?

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Published - Fri, 10 Mar 2023

Goals and Objectives - Principles of Management - Chapter 6

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Goals and Objectives - Principles of Management - Chapter 6

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Understand the nature of goals and objectives and why they are important.See how our thinking about goals and objectives has evolved.Know what characterizes good goals and objectives.Understand the roles of goals and objectives in employee performance reviews.Map out relationships among economic, social, and environmental goals and objectives.Set and manage your own goals and objectives.Goals and objectives are a critical component of management, both in terms of planning and in terms of the larger planning-organizing-leading-controlling (P-O-L-C) framework. You can see their role summarized in the P-O-L-C figure. Unfortunately, because their role and importance seem obvious, they also tend to be neglected in managerial practice or poorly aligned with the organization’s strategy. You can imagine why this might be problematic, particularly since one of a manager’s functions is to evaluate employee performance—it would be nice if employees could be evaluated based on how their achievement of individual goals and objectives contributes to those critical to the organization’s survival and success. In this chapter, we introduce you to the basics on goals and objectives and provide you with an understanding of how their usage has evolved. We also show you how to develop a personalized set of goals and objectives to help you achieve your personal and professional aspirations.Figure 6.2 Goals and Objectives in the P-O-L-C Framework6.1 Case in Point: Nucor Aligns Company Goals With Employee GoalsManufacturing steel is not a glamorous job. The industry is beset by many problems, and more than 40 steel manufacturers have filed for bankruptcy in recent years. Most young employees do not view working at a steel mill as their dream job. Yet, one company distinguished itself from all the rest by remaining profitable for over 130 quarters and by providing an over 350% return on investment (ROI) to shareholders. The company is clearly doing well by every financial metric available and is the most profitable in its industry.How do they achieve these amazing results? For one thing, every one of Nucor Corporation’s (NYSE: NUE) 12,000 employees acts like an owner of the company. The overarching goal is “take care of our customers.” Employees are encouraged to fix the things they see as wrong and have real power on their jobs. When there is a breakdown in a plant, a supervisor does not have to ask employees to work overtime; employees volunteer for it. In fact, the company is famous for its decentralized structure and for pushing authority and responsibility down to lower levels in the hierarchy. Tasks that previously belonged to management are performed by line workers. Management listens to lower level employees and routinely implements their new ideas.The reward system in place at Nucor is also unique, and its employees may be the highest paid steelworkers in the world. In 2005, the average Nucor employee earned $79,000, followed by a $2,000 bonus decided by the company’s annual earnings and $18,000 in the form of profit sharing. At the same time, a large percentage of these earnings are based on performance. People have the opportunity to earn a lot of money if the company is doing well, and there is no upward limit to how much they can make. However, they will do much worse than their counterparts in other mills if the company does poorly. Thus, it is to everyone’s advantage to help the company perform well. The same incentive system exists at all levels of the company. CEO pay is clearly tied to corporate performance. The incentive system penalizes low performers while increasing commitment to the company as well as to high performance.Nucor’s formula for success seems simple: align company goals with employee goals and give employees real power to make things happen. The results seem to work for the company and its employees. Evidence of this successful method is that the company has one of the lowest employee turnover rates in the industry and remains one of the few remaining nonunionized environments in manufacturing. Nucor is the largest U.S. minimill and steel scrap recycler.Case written by [citation redacted per publisher request]. Based on information from Byrnes, N., & Arndt, M. (2006, May 1). The art of motivation. BusinessWeek. Retrieved April 30, 2010, from http://www.businessweek.com/magazine/content/06_18/b3982075.htm; Foust, D. (2008, April 7). The best performers of 2008. BusinessWeek. Retrieved April 30, 2010, from http://www.businessweek.com/magazine/toc/08_14/B4078bw50.htm?chan=magazine+channel_top+stories; Jennings, J. (2003). Ways to really motivate people: Authenticity is a huge hit with Gen X and Y. The Secured Lender, 59, 62–70; Marks, S. J. (2001). Incentives that really reward and motivate. Workforce, 80, 108–114.DISCUSSION QUESTIONSHow do goals and objectives at NUCOR relate to the planning facet of the P-O-L-C framework?What negative consequences might arise at Nucor Corporation as a result of tying pay to company performance?What effects do penalizing low performers have on Nucor employees?What other ways can a company motivate employees to increase productivity, in addition to monetary incentives?How might the different reward systems at Nucor, individual empowerment and economic incentives, motivate people differently? Or do they have the same effect?How would unionization at Nucor impact the dynamic of the organization?6.2 The Nature of Goals and ObjectivesLEARNING OBJECTIVESKnow the difference between goals and objectives.Know the relationship between goals and objectives.See how goals and objectives fit in the P-O-L-C framework.What Are Goals and Objectives?Goals and objectives provide the foundation for measurement. Goals are outcome statements that define what an organization is trying to accomplish, both programmatically and organizationally. Goals are usually a collection of related programs, a reflection of major actions of the organization, and provide rallying points for managers. For example, Wal-Mart might state a financial goal of growing its revenues 20% per year or have a goal of growing the international parts of its empire. Try to think of each goal as a large umbrella with several spokes coming out from the center. The umbrella itself is a goal.In contrast to goals, objectives are very precise, time-based, measurable actions that support the completion of a goal. Objectives typically must (1) be related directly to the goal; (2) be clear, concise, and understandable; (3) be stated in terms of results; (4) begin with an action verb; (5) specify a date for accomplishment; and (6) be measurable. Apply our umbrella analogy and think of each spoke as an objective. Going back to the Wal-Mart example, and in support of the company’s 20% revenue growth goal, one objective might be to “open 20 new stores in the next six months.” Without specific objectives, the general goal could not be accomplished—just as an umbrella cannot be put up or down without the spokes. Importantly, goals and objectives become less useful when they are unrealistic or ignored. For instance, if your university has set goals and objectives related to class sizes but is unable to ever achieve them, then their effectiveness as a management tool is significantly decreased.Measures are the actual metrics used to gauge performance on objectives. For instance, the objective of improved financial performance can be measured using a number metrics, ranging from improvement in total sales, profitability, efficiencies, or stock price. You have probably heard the saying, “what gets measured, gets done.” Measurement is critical to today’s organizations. It is a fundamental requirement and an integral part of strategic planning and of principles of management more generally. Without measurement, you cannot tell where you have been, where you are now, or if you are heading in the direction you are intending to go. While such statements may sound obvious, the way that most organizations have set and managed goals and objectives has generally not kept up with this commonsense view.Measurement ChallengesThere are three general failings that we can see across organizations related to measurement. First, many organizations still emphasize historic financial goals and objectives, even though financial outcomes are pretty narrow in scope and are purely historic; by analogy, financial measures let you know where you’ve been, but may not be a good predictor of where you are going.Frost, B. (2000). Measuring performance. Dallas: Measurement International.Second, financial outcomes are often short term in nature, so they omit other key factors that might be important to the longer-term viability of the organization. For instance, return on sales (ROS, or net profit divided by total sales) is a commonly used measure of financial performance, and firms set goals and objectives related to return on sales. However, an organization can increase return on sales by cutting investments in marketing and research and development (since they are costs that lessen the “return” dimension of ROS). It may be a good thing to cut such costs, but that type of cost-cutting typically hurts the organization’s longer-term prospects. Decreases in marketing may reduce brand awareness, and decreases in research and development (R&D) will likely stifle new product or service development.Finally, goals and objectives, even when they cover more than short-term financial metrics, are often not tied to strategy and ultimately to vision and mission. Instead, you may often see a laundry list of goals and objectives that lack any larger organizing logic. Or the organization may have adopted boilerplate versions of nonfinancial measurement frameworks such as Kaplan and Norton’s Balanced Scorecard, Accenture’s Performance Prism, or Skandia’s Intellectual Capital Navigator.Ittner, C. D., & Larcker, D. (2003, November). Coming up short on nonfinancial performance measurement. Harvard Business Review, pp. 1–8.Goals and Objectives in P-O-L-CGoals and objectives are an essential part of planning. They also have cascading implications for all the aspects of organizing, leading, and controlling. Broadly speaking, goals and objectives serve to:Gauge and report performanceImprove performanceAlign effortManage accountabilitiesGoals, Objectives, and PlanningPlanning typically starts with a vision and a mission. Then managers develop a strategy for realizing the vision and mission; their success and progress in achieving vision and mission will be indicated by how well the underlying goals and objectives are achieved. A vision statement usually describes some broad set of goals—what the organization aspires to look like in the future. Mission statements too have stated goals—what the organization aspires to be for its stakeholders. For instance, Mars, Inc., the global food giant, sets out five mission statement goals in the areas of quality, responsibility, mutuality, efficiency, and freedom. Thus, goals are typically set for the organization as a whole and set the stage for a hierarchy of increasingly specific and narrowly set goals and objectives.However, unless the organization consists of only a single person, there are typically many working parts in terms of functional areas and product or service areas. Functional areas like accounting and marketing will need to have goals and objectives that, if measured and tracked, help show if and how those functions are contributing to the organization’s goals and objectives. Similarly, product and service areas will likely have goals and objectives. Goals and objectives can also be set for the way that functions and product or service areas interact. For instance, are the accounting and marketing functions interacting in a way that is productive? Similarly, is marketing delivering value to product or service initiatives?Goals, Objectives, and Organizing, Leading, and ControllingWithin the planning facet of P-O-L-C alone, you can think of goals and objectives as growing in functional or product/service arena specificity as you move down the organization. Similarly, the time horizon can be shorter as you move down the organization as well. This relationship between hierarchy and goals and objectives is summarized in the following figure.Obviously, the role of goals and objectives does not stop in the planning stage. If goals and objectives are to be achieved and actually improve the competitive position of the firm, then the organizing, leading, and controlling stages must address goals and objectives as well.The way that the firm is organized can affect goals and objectives in a number of ways. For instance, a functional organizational structure, where departments are broken out by finance, marketing, operations, and so on, will likely want to track the performance of each department, but exactly what constitutes performance will probably vary from function to function.In terms of leadership, it is usually top managers who set goals and objectives for the entire organization. Ideally, then, lower-level managers would set or have input into the goals and objectives relevant to their respective parts of the business. For example, a CEO might believe that the company can achieve a sales growth goal of 20% per year. With this organizational goal, the marketing manager can then set specific product sales goals, as well as pricing, volume, and other objectives, throughout the year that show how marketing is on track to deliver its part of organizational sales growth. Goal setting is thus a primary function of leadership, along with holding others accountable for their respective goals and objectives.Figure 6.4 Goals and Objectives in PlanningFinally, goals and objectives can provide a form of control since they create a feedback opportunity regarding how well or how poorly the organization executes its strategy. Goals and objectives also are a basis for reward systems and can align interests and accountability within and across business units. For instance, in a business with several divisions, you can imagine that managers and employees may behave differently if their compensation and promotion are tied to overall company performance, the performance of their division, or some combination of the two.KEY TAKEAWAYGoals are typically outcome statements, while objectives are very precise, time-based, and measurable actions that support the completion of goals. Goals and objectives are an essential element in planning and are a key referent point in many aspects of organizing, leading, and controlling. Broadly speaking, within the P-O-L-C framework, goals and objectives serve to (1) gauge and report performance, (2) improve performance, (3) align effort and, (4) manage accountabilities.EXERCISESWhat is the difference between a goal and an objective?What is the relationship between a goal and an objective?What characteristics should a good objective have?What four broad ways do goals and objectives fit in the P-O-L-C framework?Why are goals and objectives relevant to leadership?In what ways do goals and objectives help managers control the organization?6.3 From Management by Objectives to the Balanced ScorecardLEARNING OBJECTIVESBe able to describe management by objectives.Be able to describe the Balanced Scorecard.Understand the evolution of performance measurement systems.As you might expect, organizations use a variety of measurement approaches—that is, how they go about setting and managing goals and objectives. If you have an understanding of how the use of these approaches has evolved, starting with management by objectives (MBO), you will also have a much better view of how and why the current incarnations, as seen by variations on the Balanced Scorecard, have many desirable features.Management by ObjectivesMBO is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources. MBO aims to increase organizational performance by aligning the subordinate objectives throughout the organization with the overall goals that management has set. Ideally, employees get strong input to identify their objectives, time lines for completion, and so on. MBO includes ongoing tracking and feedback in the process to reach objectives.MBO was first outlined by Peter Drucker in 1954 in The Practice of Management. One of Drucker’s core ideas in MBO was where managers should focus their time and energy. According to Drucker, effective MBO managers focus on the result, not the activity. They delegate tasks by “negotiating a contract of objectives” with their subordinates and by refraining from dictating a detailed road map for implementation. MBO is about setting goals and then breaking these down into more specific objectives or key results. MBO involves (1) setting company-wide goals derived from corporate strategy, (2) determining team- and department-level goals, (3) collaboratively setting individual-level goals that are aligned with corporate strategy, (4) developing an action plan, and (5) periodically reviewing performance and revising goals.Greenwood, R. G. (1981). Management by objectives: As developed by Peter Drucker, assisted by Harold Smiddy. Academy of Management Review, 6, 225–230; Muczyk, J. P., & Reimann, B. C. (1989). MBO as a complement to effective leadership. Academy of Management Executive, 3, 131–138; Reif, W. E., & Bassford, G. (1975). What MBO really is: Results require a complete program. Business Horizons, 16, 23–30. A review of the literature shows that 68 out of the 70 studies conducted on this topic showed performance gains as a result of MBO implementation.Rodgers, R., & Hunter, J. E. (1991). Impact of management by objectives on organizational productivity. Journal of Applied Psychology, 76, 322–336. It also seems that top management commitment to the process is the key to successful implementation of MBO programs.Rodgers, R., Hunter, J. E., & Rogers, D. L. (1993). Influence of top management commitment on management program success. Journal of Applied Psychology, 78, 151–155.The broader principle behind MBO is to make sure that everybody within the organization has a clear understanding of the organization’s goals, as well as awareness of their own roles and responsibilities in achieving objectives that will help to attain those goals. The complete MBO system aims to get managers and empowered employees acting to implement and achieve their plans, which automatically achieves the organization’s goals.Setting ObjectivesIn MBO systems, goals and objectives are written down for each level of the organization, and individuals are given specific aims and targets. As consultants Robert Heller and Tim Hindle explain, “The principle behind this is to ensure that people know what the organization is trying to achieve, what their part of the organization must do to meet those aims, and how, as individuals, they are expected to help. This presupposes that organization’s programs and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process.”Heller, R., & Hindle, T. (1998). Essential manager’s manual. London: Dorling Kindersley.Echoing Drucker’s philosophy, “the one thing an MBO system should provide is focus; most people disobey this rule, try to focus on everything, and end up with no focus at all,” says Andy Grove, who ardently practiced MBO at Intel. This implies that objectives are precise and few in effective MBO systems.Similarly, for MBO to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company goals set by the board of directors. As Drucker wrote, “A manager’s job should be based on a task to be performed in order to attain the company’s goals…the manager should be directed and controlled by the objectives of performance rather than by his boss.”Drucker, P. (1974). Management: Tasks, responsibilities, practices. London: Heinemann. The managers of an organization’s various units, subunits, or departments should know not only the objectives of their unit but should also actively participate in setting these objectives and make responsibility for them. The review mechanism enables the organization’s leaders to measure the performance of the managers who report to them, especially in the key result areas: marketing, innovation, human organization, financial resources, physical resources, productivity, social responsibility, and profit requirements.Seeking a Balance: The Move Away from MBOIn recent years, opinion has moved away from placing managers into a formal, rigid system of objectives. In the 1990s, Drucker decreased the significance of this organization management method when he said, “It’s just another tool. It is not the great cure for management inefficiency.”Drucker, P. (1986). The frontiers of management: Where tomorrow’s decisions are being shaped today. New York: Plume. Recall also that goals and objectives, when managed well, are tied in with compensation and promotion. In 1975, Steve Kerr published his critical management article titled, “On the Folly of Rewarding A, While Hoping for B,” in which he lambasted the rampant disconnect between reward systems and strategy.Kerr, S. (1975). On the folly of rewarding A, while hoping for B. Academy of Management Journal, 18, 769–783. Some of the common management reward follies suggested by Kerr and others are summarized in the following table. His criticism included the objective criteria characteristic of most MBO systems. Kerr went on to lead GE’s human resources function in the mid-1970’s and is credited with turning that massive organization’s recruiting, reward, and retention systems into one of its key sources of competitive advantage.Table 6.1 Common Management Reward FolliesWe hope for…But we often reward…Long-term growth; environmental responsibilityQuarterly earningsTeamworkIndividual effortSetting challenging “stretch” goalsAchieving objectives; “making the numbers”Downsizing; rightsizing; restructuringAdding staffing; adding budgetCommitment to qualityShipping on schedule, even with defectsCommitment to customer serviceKeeping customers from bothering usThis item was not one of Kerr’s originals but is consistent with the spirit of Kerr’s article. We thank our developmental editor, Elsa Peterson, for this suggestion.Candor; surfacing bad news earlyReporting good news, whether it’s true or not; agreeing with the boss, whether or not she or he is rightEven though formal MBO programs have been out of favor since the late 1980s and early 1990s, linking employee goals to company-wide goals is a powerful idea that benefits organizations. This is where the Balanced Scorecard and other performance management systems come into play.The Balanced ScorecardDeveloped by Robert Kaplan and David Norton in 1992, the Balanced Scorecard approach to management has gained popularity worldwide since the 1996 release of their text, The Balanced Scorecard: Translating Strategy into Action. In 2001, the Gartner Group estimated that at least 40% of all Fortune 1000 companies were using Balanced Scorecard; however, it can be complex to implement, so it is likely that the format of its usage varies widely across firms.The Balanced Scorecard is a framework designed to translate an organization’s mission and vision statements and overall business strategy into specific, quantifiable goals and objectives and to monitor the organization’s performance in terms of achieving these goals. Among other criticisms of MBO, one was that it seemed disconnected from a firm’s strategy, and one of Balanced Scorecard’s innovations is explicit attention to vision and strategy in setting goals and objectives. Stemming from the idea that assessing performance through financial returns only provides information about how well the organization did prior to the assessment, the Balanced Scorecard is a comprehensive approach that analyzes an organization’s overall performance in four ways, so that future performance can be predicted and proper actions taken to create the desired future.Four Related AreasBalanced Scorecard shares several common features. First, as summarized in the following figure, it spells out goals and objectives for the subareas of customers, learning and growth, internal processes, and financial performance. The customer area looks at customer satisfaction and retention. Learning and growth explore the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance. The internal area looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity. Finally, financial performance, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return-on-investment.Figure 6.6 The Balanced ScorecardSource: Adapted from Kaplan, R., & Norton, D. (2001). The Strategy-Focused Organization. Boston: Harvard Business School Press.On the basis of how the organization’s strategy is mapped out in terms of customer, learning, internal, and financial goals and objectives, specific measures, and the specific activities for achieving those are defined as well. This deeper Balanced Scorecard logic is summarized in the following figure. The method examines goals, objectives, measures, and activities in four areas. When performance measures for areas such as customer relationships, internal processes, and learning and growth are added to the financial metrics, proponents of the Balanced Scorecard argue that the result is not only a broader perspective on the company’s health and activities, it’s also a powerful organizing framework. It is a sophisticated instrument panel for coordinating and fine-tuning a company’s operations and businesses so that all activities are aligned with its strategy.As a structure, Balanced Scorecard breaks broad goals down successively into objectives, measures, and tactical activities. As an example of how the method might work, an organization might include in its mission or vision statement a goal of maintaining employee satisfaction (for instance, the mission statement might say something like “our employees are our most valuable asset”). This would be a key part of the organization’s mission but would also provide an “internal” target area for that goal in the Balanced Scorecard. Importantly, this goal, when done correctly, would also be linked to the organization’s total strategy where other parts of the scorecard would show how having great employees provides economic, social, and environmental returns. Strategies for achieving that human resources vision might include approaches such as increasing employee-management communication. Tactical activities undertaken to implement the strategy could include, for example, regularly scheduled meetings with employees. Finally, metrics could include quantifications of employee suggestions or employee surveys.Figure 6.7 Using the Balanced Scorecard to Translate Goals into ActivitiesSource: Adapted from Kaplan, R., & Norton, D. (2001). The Strategy-Focused Organization. Boston: Harvard Business School Press.The Balanced Scorecard in PracticeIn practice, the Balanced Scorecard is supposed to be more than simply a framework for thinking about goals and objectives, but even in that narrow sense, it is a helpful organizing framework. The Balanced Scorecard’s own inventors “rightly insist that every company needs to dig deep to discover and track the activities that truly affect the frameworks’ broad domains (domains such as ‘financial,’ ‘customer,’ ‘internal business processes,’ and ‘innovation and learning’).”Ittner, C. D., & Larcker, D. (2003, November). Coming up short on nonfinancial performance measurement, Harvard Business Review, pp. 1–8. In its broadest scope, where the scorecard operates much like a map of the firm’s vision, mission, and strategy, the Balanced Scorecard relies on four processes to bind short-term activities to long-term objectives:Translating the vision. By relying on measurement, the scorecard forces managers to come to agreement on the metrics they will use to translate their lofty visions into everyday realities.Communicating and linking. When a scorecard is disseminated up and down the organizational chart, strategy becomes a tool available to everyone. As the high-level scorecard cascades down to individual business units, overarching strategic objectives and measures are translated into objectives and measures appropriate to each particular group. Tying these targets to individual performance and compensation systems yields “personal scorecards.” Thus, individual employees understand how their own productivity supports the overall strategy.Business planning. Most companies have separate procedures (and sometimes units) for strategic planning and budgeting. Little wonder, then, that typical long-term planning is, in the words of one executive, where “the rubber meets the sky.” The discipline of creating a Balanced Scorecard forces companies to integrate the two functions, thereby ensuring that financial budgets indeed support strategic goals. After agreeing on performance measures for the four scorecard perspectives, companies identify the most influential “drivers” of the desired outcomes and then set milestones for gauging the progress they make with these drivers.Feedback and learning. By supplying a mechanism for strategic feedback and review, the Balanced Scorecard helps an organization foster a kind of learning often missing in companies: the ability to reflect on inferences and adjust theories about cause-and-effect relationships.Other Peformance Measurement SystemsYou can imagine that it might be difficult for organizations to change quickly from something like MBO to a Balanced Scorecard approach. Indeed, both MBO and the Balanced Scorecard fit in the larger collection of tools called performance management systems. Such systems outline “the process through which companies ensure that employees are working towards organizational goals.”Ghorpade, J., & Chen, M. (1995). Creating quality-driven performance appraisal systems. Academy of Management Executive, 9(1): 23–41.Performance management begins with a senior manager linking his or her goals and objectives to the strategic goals of the organization. The manager then ensures that direct reports develop their goals in relation to the organization’s overall goals. In a multidivisional or multilocation organization, lower-level managers develop their goals, and thus their departmental goals, to correspond to the organizational goals. Staff members within each department then develop their objectives for the year, in cooperation with their managers. Using this pattern for planning, all activities, goals, and objectives for all employees should be directly related to the overall objectives of the larger organization.Performance management systems are more than the performance review because reviews typically are the final event in an entire year of activity. At the beginning of the year, the manager and employee discuss the employee’s goals or objectives for the year. This will form the basis for ongoing discussion recorded in a document called the performance plan. The manager assists employees in developing their objectives by helping them to understand how their work relates to the department goals and the overall goals of the organization. The employee and manager also should work together to determine the measurements for evaluating each of the objectives. It is important that both the manager and employee agree what the objectives are and how they are to be measured.Employees should not be set up with unrealistic expectations, which will only lead to a sense of failure. If additional support or education is required during the year to help employees meet their objectives, those can also be identified and planned for at this time.The performance plan will contain the section on goals or objectives. It also should include a section that identifies the organization’s expectations of employee competencies. The set of expectations will involve a range of competencies applicable to employees based on their level in the organization. These competencies include expectations of how employees deal with problems, how proactive they are with respect to changing work, and how they interact with internal and external customers. While less complex than the Balanced Scorecard, you can see how the essential components are related. In addition to basic behavioral traits, supervisors and managers are expected to exhibit leadership and, more senior still, provide vision and strategic direction. It is important to ensure that employees understand these competencies in respect to themselves.Throughout the year, the supervisor must participate actively in coaching and assisting all employees to meet their individual goals and objectives. Should a problem arise—either in the way that success is being measured or in the nature of the objectives set at the beginning of the year—it can be identified well in advance of any review, and adjustments to the goals or support for the employee can be provided. This is referred to as continual assessment.For example, suppose a staff member predicted that he or she would complete a particular project by a particular date, yet they have encountered problems in receiving vital information from another department. Through active involvement in staff activities, the supervisor is made aware of the situation and understands that the employee is intimidated by the supervisor they must work with in the other department. With coaching, the employee develops a method for initiating contact with the other department and receives the vital information she requires to meet her objective.KEY TAKEAWAYThe way that goals and objectives are managed in the P-O-L-C process has evolved over time. While organizations can have very simple performance measurement systems, these systems typically track multiple goals and objectives. The management by objectives (MBO) approach is perhaps one of the earliest systematic approaches to working with goals and objectives. The Balanced Scorecard is aimed to make key improvements on a simple MBO system, particularly by more clearly tying goals and objectives to vision, mission, and strategy and branching out beyond purely financial goals and objectives. MBO and the Balanced Scorecard belong to the larger family of systems called performance management systems.EXERCISESWhat is Management by objectives (MBO)?What are some of the advantages of MBO?What are some of the disadvantages and criticisms of MBO?What is a Balanced Scorecard?What are some of the advantages of a Balanced Scorecard?What are some of the disadvantages of a Balanced Scorecard?6.4 Characteristics of Effective Goals and ObjectivesLEARNING OBJECTIVESBe able to set appropriate goals.Be able to troubleshoot an existing set of goals and objectives.Understand the characteristics of good goals and objectives.To be clear, this section does not outline which goals or objectives are appropriate or inappropriate, economically, ethically, morally, or otherwise. Instead, you will learn many of the characteristics of good goals and objectives, with the aim of becoming a better organizational goal setter (in the last section of this chapter, we remind you about SMART criteria, which is the application of many of this section’s takeaways to the development of your personal and professional goals and objectives). At the same time, you should be able to look at a set of goals and objectives and critique them effectively, such that more appropriate goals and objectives can be developed to replace them.Eight Characteristics of Appropriate Goals and ObjectivesFigure 6.8 Characteristics of Appropriate Goals and ObjectivesWe tend to think that goals and objectives are easy to set, and yet, this intuition is often wrong in the organizational context. Goals and objectives are difficult to set because we might not know what they should cover or because we lay out too many of them with the hope that we are covering all the bases. Similarly, goals and objectives can proliferate in organizations because new ones are set, while old ones are not discarded. Stanford University management professor Kathleen Eisenhardt noted that there must be a certain balance to the number and type of goals and objectives: too many goals and objectives are paralyzing; too few, confusing.Eisenhardt, K., & Sull, D. (2001, January). Strategy as simple rules. Harvard Business Review, pp. 1–11. In his popular book, Keeping Score, Mark Graham Brown lists several important factors to aid managers in “rethinking” their approach to setting and managing goals and objectives, what we might call the organization’s measurement system more broadly.Brown, M. G. (1996). Keeping score. New York: Productivity Press.Fewer are better. Concentrate on measuring the vital few key variables rather than the trivial many.Measures should be linked to the factors needed for success—key business drivers.Measures should be a mix of past, present, and future to ensure the organization is concerned with all three perspectives.Measures should be based around the needs of customers, shareholders, and other key stakeholders.Measures should start at the top and flow down to all levels of employees in the organization.Multiple indices can be combined into a single index to give a better overall assessment of performance.Measures should be changed or at least adjusted as the environment and your strategy changes.Measures need to have targets or objectives established that are based on research rather than arbitrary numbers.Brown, M. G. (1996). Keeping score. New York: Productivity Press.Let’s walk through each of these criteria to gain a better understanding of these desirable characteristics of organizational goals and objectives. It is useful here to start by recognizing that goals, objectives, and measures are different animals. As explained at the beginning of this chapter, goals tend to be general statements, whereas objectives are specific and time bound. Measures are the indicators used to assess achievement of the objective. In some cases, a goal, an objective, and a measure can be the same thing, but more often you will set a goal, have a few objectives underlying that goal, and then one or more measures for each of the objectives.Less Is MoreLess is more, fewer is better, and simple rules are the common mantra here. Eisenhardt suggests that organizations should have two to seven key goals, or rules, using her vocabulary.Eisenhardt, K., & Sull, D. (2001, January). Strategy as simple rules. Harvard Business Review, pp. 1–11. Such goals guide how the firm operates, identify which opportunities to pursue, set priorities, manage timing of actions, and even inform business exit decisions.If the organization should have only two to seven key goals, what about objectives and measures? Metric guru Graham Brown suggests that managers should not try to follow any more than 20 measures of performance in terms of performance on objectives. Thus, with two to seven goals, and 20 performance measures, this means that you will likely have a number of objectives somewhere between the number of set goals and the number of measures. Why this limit? “No individual can monitor and control more than twenty variables on a regular basis,” says Graham Brown.Brown, M. G. (1996). Keeping score. New York: Productivity Press.Tie Measures to Drivers of SuccessOne of the key litmus tests for setting goals, objectives, and measures is whether they are linked in some way to the key factors driving an organization’s success or competitive advantage. This means that they must provide a verified path to the achievement of a firm’s strategy, mission, and vision. This characteristic of effective goals, objectives, and measures is one reason that many managers use some form of Balanced Scorecard in their businesses. The Balanced Scorecard process provides a framework for evaluating the overall measurement system in terms of what strategic objectives it contributes to. The big challenge, however, is to verify and validate the link to success factors. Managers who do not scrupulously uncover the fundamental drivers of their units’ performance face several potential problems. They often end up measuring too many things, trying to fill every perceived gap in the measurement system.Don’t Just Measure the PastFor a variety of reasons it is important to capture past performance. After all, many stakeholders such as investors, owners, customers, and regulators have an interest in how the firm has lived up to it obligations. However, particularly in the area of objectives and measurement, the best systems track the past, present, and future. Echoing this observation, Robert Kaplan, co-originator of the Balanced Scorecard framework, published another book on the subject called The Balanced Scorecard: You Can’t Drive a Car Solely Relying on a Rearview Mirror. A combination of goals, objectives, and measures that provides such information is sometimes referred to as a dashboard—like the analogy that a dashboard tells you how the car is running, and through the windshield you can see where you are going. Indicators on how well the economy is doing, for instance, can suggest whether your business can experience growing or declining sales. Another leading indicator is customer satisfaction. General Electric, for instance, asks its customers whether they will refer other customers to GE. GE’s managers have found that the higher this likelihood of referral, the greater the next quarter’s sales demands. As a result, GE uses this measure to help it forecast future growth, as well as evaluate the performance of each business unit.Take Stakeholders Into AccountWhile it is important to track the goals and objectives most relevant to the needs of the business, relevance is subjective. This is why it is valuable to understand who the organization’s key stakeholders are, and set the goals, objectives, and measures in such a way that stakeholders can be satisfied. Or, at the very least, stakeholders can gain information relevant to their particular interests. Some stakeholders may never be entirely satisfied with companies’ performance—for example, some environmental groups may continue to criticize a company’s environmental impact, but they can be somewhat placated with more transparent reporting of what the company is doing on the environmental front. Similarly, stakeholders with social concerns will appreciate transparency in reporting on the organization’s corporate social responsibility efforts.Cascade Goals Into ObjectivesThe less-is-more concept can apply to the way that goals cascade into objectives, which cascade into measures. Tying goals and objectives to drivers of success means that vision, mission, and strategy cascade down to goals, and so on. The first benefit of this cascade approach is that goals and objectives are consistent with the strategy, vision, and mission. A second benefit is that goals and objectives in lower levels of the organization are more likely to be vertically and horizontally consistent since they should be designed to achieve the higher-level goals and objectives and, ultimately, the overarching strategy of the organization.SimplifyInformation overload is a challenge facing all managers (and students and teachers!), and simplification builds on the idea that managers can attend to a few things well but many things poorly. Simplification refers both to the use of fewer, not more, metrics, objectives and goals, and the idea that multiple measures should be distilled down into single measures like an index or a simple catch-all question. For instance, GE’s use of the single question about referring customers is a powerful but effective leading metric and a metric that it can reinforce with its rewards system. When metrics involve multiple dimensions, in areas where the organization wants to gauge customer satisfaction, for example, a survey can have 10 or more questions. Think about the many customer satisfaction surveys you are asked to complete after making an online purchase. Which question is the most important? The challenge, of course, is that a simple average of the customer survey scores, while providing a simpler indicator, also may hide some key indicator that is now buried in the average score. Therefore, the organization might need to experiment a bit with different ways of simplifying the measures with the aim of providing one that best reflects achievement of the key objective.AdaptAn organization’s circumstances and strategies tend to change over time. Since goals, objectives, and measures need to tie directly to the organization’s strategy, they should be changed as well when the strategy changes. For example, many U.S. automakers set out to dominate certain car and truck segments on the basis of vehicle features and price, not fuel efficiency. However, the recent fluctuations in oil prices gave rise to a market for more fuel-efficient vehicles. Unless the automakers set some aggressive fuel efficiency objectives for their new models, however, that is unlikely to be a differentiating feature of their cars and trucks. Adaptation of metrics is not the same as adding more or other metrics. In the spirit of fewer and simpler measures, managers should be asked to take a measure away if they plan to introduce a new one.Base Objectives on FactsFinally, while goals may sometimes be general (such as performance goals in which managers simply state, grow profits 10%), the objectives and the metrics that gauge them should be quite specific and set based on facts and information, not intuition. A fact-based decision-making process starts with the compilation of relevant data about the particular goal. This in turn typically requires that the organization invest in information and in information-gathering capabilities.For example, early in Jack Welch’s tenure as CEO of GE, he set out a financial goal for the company of improving its return on assets (ROA), a measure of financial efficiency. One of the underlying determinants of ROA is inventory-turn, that is, how many times a firm can sell its stock of inventory in a given year. So, to improve ROA, a firm will likely have to also improve its inventory turns. One of GE’s divisions manufactured refrigerators and turned its inventory seven times per year. What objective should Welch set for the refrigerator division’s inventory turn? Instead of simply guessing, Welch sent a team of managers into another manufacturing firm (with permission of the firm’s owners and top managers) in a different industry and learned that it was achieving turns of 12 to 17 times per year! Armed with this information, Welch could then set a clear and fact-based inventory-turn objective for that division, which in turn supported one of the overarching financial goals he had set for GE.Figure 6.9 Steve Jobs Announcing Apple’s Release of the iPhoneSource: http://www.flickr.com/photos/51035629850@N01/522131312Fact-based objectives typically can be clearer and more precise the shorter the relative time to their achievement. For instance, a firm can likely predict next week’s sales better than next year’s sales. This means that goals and objectives for the future will likely need to be more specific when they are fairly current but will necessarily be less precise down the road.The main challenge with fact-based objectives is that many firms find future opportunities in markets where there is not an existing set of customers today. For instance, before Apple released the iPhone, how big would you expect that market to be? There certainly were no facts, aside from general demographics and the technology, to set fact-based goals and objectives. In such cases, firms will need to conduct “experiments” where they learn about production and market characteristics, such that the first goals and objectives will be related to learning and growth, with more specific fact-based objectives to follow. Otherwise, firms will only take action in areas where there are data and facts, which clearly creates a paradox for managers if the future is uncertain in their particular industry.KEY TAKEAWAYThis section described eight general characteristics of good goals, objectives, and measures. Fewer and simpler goals and objectives are better than more and complex ones. Similarly, goals and objectives should be tied to strategy and, ultimately, to vision and mission, in a cascading pattern so that objectives and measures support the goals they are aiming to help achieve. Goals and objectives must also change with the times and, wherever possible, be anchored in facts or fact-finding and learning.EXERCISESWhy might fewer goals be better than more goals and objectives?Why should managers strive for a balance of history-based, present, and future-oriented metrics of performance?What is meant by cascading goals and objectives?What roles do strategy, vision, and mission play with respect to goals and objectives?What are some ways to simplify goals and objectives?When might fact-based objective setting be difficult or inappropriate?6.5 Using Goals and Objectives in Employee Performance EvaluationLEARNING OBJECTIVESUnderstand where goals and objectives fit in employee development.See how goals and objectives are part of an effective employee performance evaluation process.Goals, Objectives, and Performance ReviewsSince leadership is tasked with accomplishing things through the efforts of others, an important part of your principles of management tool kit is the development and performance evaluation of people. A performance evaluation is a constructive process to acknowledge an employee’s performance. Goals and objectives are a critical component of effective performance evaluations, so we need to cover the relationship among them briefly in this section. For instance, the example evaluation form needs to have a set of measurable goals and objectives spelled out for each area. Some of these, such as attendance, are more easy to describe and quantify than others, such as knowledge. Moreover, research suggests that individual and organizational performance increase 16% when an evaluation system based on specific goals and objectives is implemented.Rynes, S., Brown, K., & Colbert, A. 2002. Seven common misconceptions about human resource practices: Research findings versus practitioner beliefs. Academy of Management Executive, 16(3): 92–102.Role and Limitations of Performance EvaluationsMost organizations conduct employee performance evaluations at least once a year, but they can occur more frequently when there is a clear rationale for doing so—for instance, at the end of a project, at the end of each month, and so on. For example, McKinsey, a leading strategy consulting firm, has managers evaluate employees at the end of every consulting engagement. So, in addition to the annual performance evaluation, consultants can receive up to 20 mini-evaluations in a year. Importantly, the timing should coincide with the needs of the organization and the development needs of the employee.Performance evaluations are critical. Organizations are hard-pressed to find good reasons why they can’t dedicate an hour-long meeting at least once a year to ensure the mutual needs of the employee and organization are being met. Performance reviews help managers feel more honest in their relationships with their subordinates and feel better about themselves in their supervisory roles. Subordinates are assured clear understanding of what goals and objectives are expected from them, their own personal strengths and areas for development, and a solid sense of their relationship with their supervisor. Avoiding performance issues ultimately decreases morale, decreases credibility of management, decreases the organization’s overall effectiveness, and wastes more of management’s time to do what isn’t being done properly.Finally, it is important to recognize that performance evaluations are a not a panacea for individual and organizational performance problems. Studies show that performance-appraisal errors are extremely difficult to eliminate.Rynes, S., Brown, K., & Colbert, A. 2002. Seven common misconceptions about human resource practices: Research findings versus practitioner beliefs. Academy of Management Executive, 16(3): 92–102. Training to eliminate certain types of errors often introduces other types of errors and sometimes reduces accuracy. The most common appraisal error is leniency, and managers often realize they are committing it. Mere training is insufficient to eliminate these kinds of errors: action that is more systematic is required, such as intensive monitoring or forced rankings.Figure 6.11 Example Employee Evaluation FormAn Example of the Performance Review ProcessFor the purpose of this example, let’s assume that the organization has determined that annual performance evaluations fit the strategic needs of the organization and the developmental needs of employees. This does not mean however that management and employees discuss goals, objectives, and performance only once a year. In our example, the organization has opted to have a midyear information meeting and then an end-of-year performance evaluation meeting.At some point in the year, the supervisor should hold a formal discussion with each staff member to review individual activities to date and to modify the goals and objectives that employee is accountable for. This agreed-upon set of goals and objectives is sometimes called an employee performance plan. There should be no surprises at this meeting. The supervisor should have been actively involved in continual assessment of his or her staff through regular contact and coaching. If major concerns arise, the performance plan can be modified or the employees can receive development in areas in which they may be weak. This also is a time for the employee to provide formal feedback to the supervisor on the coaching, on the planning, and on how the process seems to be working.At the end of the year, a final review of the activities and plans for developing the next year’s objectives begin. Again, this is a chance to provide constructive and positive feedback and to address any ongoing concerns about the employee’s activities and competencies. Continuing education opportunities can be identified, and for those systems linked to compensation, salary raises will be linked to the employee’s performance during the year. Again, there should be no surprises to either employee or supervisor, as continual assessment and coaching should take place throughout the year. Supervisors and managers are involved in the same series of activities with their own supervisors to ensure that the entire organization is developing and focused on the same common objectives.There are many varieties of performance management systems available, but you must be aware that you will need to tailor any system to suit the needs of the organization and the staff. As the organization and its competitive environment change over time, the system will also need to develop to reflect changes to employee competencies, ranking systems, and rewards linked to the plan.How do you handle your reviews, that is, when you are the focus of the review process? “Your Performance Review” summarizes some key ideas you might keep in mind for your next review.Your Performance ReviewThere are typically three areas you should think about when having your own performance reviewed: (1) preparation for the review, (2) what to do if the review is negative, and (3) what should you ultimately take away from the review.Prepare for an upcoming review. Document your achievements and list anything you want to discuss at the review. If you haven’t kept track of your achievements, you may have to spend some time figuring out what you have accomplished since your last review and, most importantly, how your employer has benefited, such as increased profits, grown the client roster, maintained older clients, and so on. These are easier to document when you have had clear goals and objectives.What should you do if you get a poor review? If you feel you have received an unfair review, you should consider responding to it. You should first try to discuss the review with the person who prepared it. Heed this warning, however. Wait until you can look at the review objectively. Was the criticism you received really that off the mark or are you just offended that you were criticized in the first place? If you eventually reach the conclusion that the review was truly unjust, then set an appointment to meet with your reviewer. If there are any points that were correct, acknowledge those. Use clear examples that counteract the criticisms made. A paper trail is always helpful. Present anything you have in writing that can back you up. If you didn’t leave a paper trail, remember to do this in the future.What should you take away from a performance review? Ultimately, you should regard your review as a learning opportunity. For instance, did you have clear goals and objectives such that your performance was easy to document? You should be able to take away valuable information, whether it is about yourself or your reviewer.Best PracticesWhile there is no single “best way” to manage performance evaluations, the collective actions across a number of high-performing firms suggests a set of best practices.Decide what you are hoping to achieve from the system. Is it to reward the stars and to correct problems? Or is its primary function to be a tool in focusing all staff activities through better planning?Develop goals and objectives that inspire, challenge, and stretch people’s capabilities. Once goals and objectives are clearly communicated and accepted, enlist broad participation, and do not shut down ideas. Support participation and goal attainment through the reward system, such as with gainsharing or other group incentive programs.Ensure you have commitment from the top. Planning must begin at the executive level and be filtered down through the organization to ensure that employees’ plans are meaningful in the context of the organization’s direction. Top managers should serve as strong role models for the performance evaluation process and attach managerial consequences to the quality of performance reviews (for instance, McKinsey partners are evaluated on how well they develop their consultants, not just the profitability of their particular practice).Ensure that all key staff are involved in the development of the performance management processes from the early phases. Provide group orientations to the program to decrease anxiety over the implementation of a new system. It will ensure a consistent message communicated about the performance management system.If the performance management system is not linked to salary, be sure employees are aware of it. For example, university business school professors are paid salaries based on highly competitive external labor markets, not necessarily the internal goals and objectives of the school such as high teaching evaluations, and so on. Make sure employees know the purpose of the system and what they get out of it.Provide additional training for supervisors on how to conduct the midyear and year-end performance reviews. Ensure that supervisors are proficient at coaching staff. Training, practice, and feedback about how to avoid appraisal errors are necessary, but often insufficient, for eliminating appraisal errors. Eliminating errors may require alternative approaches to evaluation, such as forced distribution (for instance, General Electric must rank the lowest 10% of performers and often ask them to find work with another employer).Plan to modify the performance management system over time, starting with goals and objectives, to meet your organization’s changing needs. Wherever possible, study employee behaviors in addition to attitudes; the two do not always converge.KEY TAKEAWAYThis section outlined the relationship between goals and objectives and employee performance evaluation. Performance evaluation is a tool that helps managers align individual performance with organizational goals and objectives. You saw that the tool is most effective when evaluation includes well-developed goals and objectives that are developed with the needs of both the organization and employee in mind. The section concluded with a range of best practices for the performance evaluation process, including the revision of goals and objectives when the needs of the organization change.EXERCISESHow are goals and objectives related to employee performance evaluation?How often should performance evaluations be performed?What kinds of goals and objectives might be best for performance evaluation to be most effective?What should be included in an employee performance plan?What performance evaluation best practices appear to most directly involve goals and objectives?6.6 Integrating Goals and Objectives with Corporate Social ResponsibilityLEARNING OBJECTIVESUnderstand the nature of corporate social responsibility.See how corporate social responsibility, like other goals and objectives, can be incorporated using the Balanced Scorecard.Understand that corporate social responsibility, like any other goal and objective, helps the firm only when aligned with its strategy, vision, and mission.One of the overarching lessons of this chapter is that goals and objectives are only effective to the extent that they reinforce the organization’s strategy and therefore the realization of its vision and mission. This section is somewhat integrative in that it provides knowledge about the ways that goals and objectives related to social and environmental issues can be tied back into strategy using a Balanced Scorecard approach.Corporate Social ResponsibilityThe corporate social responsibility (CSR) movement is not new and has been gathering momentum for well over a decade.Crawford, D., & Scaletta, T. (2005, November 24). http://www.greenbiz.com/feature/2005/10/24/the-balanced-scorecard-and-corporate-social-responsibility-aligning-values-profit (accessed November 11, 2008). CSR is about how companies manage their business processes to produce an overall positive effect on society. This growth has raised questions—how to define the concept and how to integrate it into the larger body of an organization’s goals and objectives. The Dow Jones Sustainability Index created a commonly accepted definition of CSR: “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.”http://www.sustainability-index.com/07_htmle/sustainability/corpsustainability.html (accessed November 11, 2008). Specifically, the Dow Jones Sustainability Index looks at competence in five areas:Strategy: Integrating long-term economic, environmental, and social aspects in their business strategies while maintaining global competitiveness and brand reputation.Financial: Meeting shareholders’ demands for sound financial returns, long-term economic growth, open communication, and transparent financial accounting.Customer and Product: Fostering loyalty by investing in customer relationship management, and product and service innovation that focuses on technologies and systems, which use financial, natural, and social resources in an efficient, effective, and economic manner over the long term.Governance and Stakeholder: Setting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting.Human: Managing human resources to maintain workforce capabilities and employee satisfaction through best-in-class organizational learning and knowledge management practices and remuneration and benefit programs.CSR and the Balanced ScorecardSince you are already familiar with the Balanced Scorecard from the previous section, you will probably already see how it can be used for CSR (a brief summary of the Balanced Scorecard concept is found in “The Balanced Scorecard at a Glance”). As experts from GreenBiz.com have observed:“One of the fundamental opportunities for the CSR movement is how to effectively align consumer and employee values with strategy to generate long-term benefits—a better understanding of precisely with whom, what, when, where, how and why an enterprise makes a profit or surplus. CSR requires more holistic strategic thinking and a wider stakeholder perspective. Because the Balanced Scorecard is a recognized and established management tool, it is well positioned to support a knowledge-building effort to help organizations make their CSR values and visions a reality. The Balanced Scorecard enables individuals to make daily decisions based upon values and metrics that can be designed to support these long-term cognizant benefits.”Crawford, D., and Scaletta, T. (2005, November 24). www.greenbiz.com/feature/2005/10/24/the-balanced-scorecard-and-corporate-social-responsibility-aligning-values-profit (accessed November 11, 2008).Thus, the Balanced Scorecard is an ideal vehicle for integrating CSR concerns with the organization’s mission, vision, and strategy.The Balanced Scorecard at a GlanceAs you know, the Balanced Scorecard is a focused set of key financial and nonfinancial indicators. These indicators include leading, pacing, and lagging measures. The term “balanced” does not mean equivalence among the measures but rather an acknowledgment of other key performance metrics that are not financial. The now classic scorecard, as outlined by Robert Kaplan and David Norton, has four quadrants or perspectives: (1) learning and growth, (2) internal, (3) customer, and (4) financial. Moreover, the idea is that each of these perspectives should be linked. For example, increased training for employees (learning and growth) can lead to enhanced operations or processes (internal), which leads to more satisfied customers through either improved delivery time and/or lower prices (customers), which finally leads to higher financial performance for the organization (financial).A number of academic authors as well as global management consulting firms like McKinsey and KPMG have written about the pressures facing firms with regard to social and environmental issues. For instance, KPMG’s “International Survey of Corporate Responsibility Reporting 2008” reflects the growing importance of corporate responsibility as a key indicator of nonfinancial performance, as well as a driver of financial performance.http://www.kpmg.com/Global/IssuesAndInsights/ArticlesAndPublications/Pages/Sustainability-corporate-responsibility-reporting-2008.aspx (accessed November 11, 2008). Also see http://www.csrwire.com/News/13565.html (accessed January 30, 2009). In the 2008 survey, KPMG noted a significant increase in the publication of corporate responsibility reports in the United States, from 37% in their 2005 survey to 74% in 2008. KPMG concluded that the survey findings also reflect a growing sense of responsibility in the business community to improve transparency and accountability to the wider community—not just to shareholders (see below for a summary of KPMG’s analysis of U.S. CSR practices).Summary of KPMG’s 2008 Report on U.S. Firm CSR Practices“The increase in corporate responsibility reporting by the top 100 companies in the United States may be attributed to an increased focus on sustainability issues within US business in the last several years. This year’s survey found that the top three drivers for corporate responsibility reporting remained the same as in ethical considerations, economic considerations, and innovation and learning.“However, within these drivers, ethical considerations (70 percent) replaced economic considerations (50 percent) as the primary driver. We also noticed a gradual maturation of corporate responsibility programs by US companies. Of the 74 percent that reported publicly, 82 percent had a defined corporate responsibility or sustainability strategy, and 77 percent had implemented management systems for their corporate responsibility goals. Furthermore, 78 percent had defined specific indicators relating to stated objectives and 68 percent actually reported on performance against the stated objectives.”http://www.kpmg.com/Global/IssuesAndInsights/ArticlesAndPublications/Pages/Sustainability-corporate-responsibility-reporting-2008.aspx (accessed November 11, 2008).The actual effect of these challenges and opportunities was recently identified in an earlier (2006) KPMG’s “International Survey of Corporate Responsibility Reporting.”http://www.kpmg.nl/Docs/Corporate_Site/Publicaties/International_Survey_Corporate_Responsibility_2005.pdf. This report surveyed more than 1,600 companies worldwide and documented the top 10 motivators driving corporations to engage in CSR for competitive reasons, which are:Economic considerationsEthical considerationsInnovation and learningEmployee motivationRisk management or risk reductionAccess to capital or increased shareholder valueReputation or brandMarket position or shareStrengthened supplier relationshipsCost savingsBy creatively responding to these market forces, and others generated by the CSR movement, organizations can reap considerable benefits. There are many examples of how companies are being affected by CSR drivers and motivators. The following two examples are just a brief sample of the myriad CSR performance motivators that are top of mind for managers.IKEASwedish home furnishings retailer IKEA discloses a lot of detailed information with regard to supply chain management in its annual CSR report.http://www.ikea-group.ikea.com/ (accessed November 11, 2008). As IKEA has suppliers in countries where the risk of labor rights abuses are perceived as high, they are obligated to work on these issues in a systematic way, which can be followed up on both internally and externally. IKEA’s 2007 “Social and Environmental Responsibility Report” is noteworthy because of its transparency on its supply chain. For example, IKEA reported on the top five purchasing countries as well as on how many IKEA suppliers are IWAY approved (The IKEA Way on Purchasing Home Furnishing Products).http://www.ikea.com/ms/en_US/about_ikea/social_environmental/the_ikea_way.html (accessed January 30, 2009). China is number one in the top five purchasing countries at 22%, yet at the same time has the lowest number of IWAY-approved suppliers (4%). IKEA seems aware that transparency also calls for completeness and has disclosed well-developed information about the challenges in Asia in general and in China specifically.PEMEXPEMEX (Mexico) is a government-controlled body that was created as a decentralized government agency of the Federal Public Administration. Its core purpose is to drive the nation’s central and strategic development activities in the state’s petroleum industry. PEMEX holds the number 11 position as a crude oil producer and is one of the three main suppliers of crude oil for the U.S. market. In 2007, total sales amounted to approximately $104.5 billion. Active personnel at PEMEX at the end of 2007 rose to 154,802 workers. PEMEX has been publishing corporate responsibility reports since 1999. The 2007 report complies with the indicators set forth in the Global Reporting Initiative (GRI) Guidelines and was the first Mexican GRI Application Level A+ report—the highest level.http://www.pemex.com (accessed 2008, November 11). Moreover, the report meets the guidelines of the United Nations Global Compact for communication in progress. The report addressed the needs of a complex sector, including the national oil and gas industry, a vast list of stakeholders, and a citizen participation group composed of highly renowned specialists to address citizens’ concerns.Measures and CSROne of the organizational challenges with CSR is that it requires firms to measure and report on aspects of their operations that were either previously unmonitored or don’t clearly map into the firm’s strategy. Thus, goals and objectives related to growing revenues through green consumers in the Lifestyles of Health and Sustainability (LOHAS) marketplace comes with the price of increased transparency—this customer group demands the necessary data to make informed decisions. Ethical considerations, KPMG’s second driver, are directly linked to the LOHAS market. LOHAS describes a $226.8 billion marketplace for goods and services focused on health, the environment, social justice, personal development, and sustainable living. The consumers attracted to this market have been collectively referred to as “cultural creatives” and represent a sizable group in the United States.Florida, R. (2005). The flight of the creative class: The global competition for talent. New York: HarperCollins. Interested stakeholders, such as employees, regulators, investors, and nongovernmental organizations (NGOs), pressure organizations to disclose more CSR information. Companies in particular are increasingly expected to generate annual CSR reports in addition to their annual financial reports.CSR reporting measures an organization’s economic, social, and environmental performance and impacts. The measurement of CSR’s three dimensions is commonly called the triple bottom line (TBL). The Global Reporting Initiative (GRI), mentioned in the case of PEMEX, is the internationally accepted standard for TBL reporting. The GRI was created in 1997 to bring consistency to the TBL reporting process by enhancing the quality, rigor, and utility of sustainability reporting. GRI issued its first comprehensive reporting guidelines in 2002 and its G3 Reporting Framework in October 2006. Since GRI was established, more than 1,000 international companies had registered with the GRI and issued corporate sustainability reports using its standards.http://www.globalreporting.org/Home.Representatives from business, accounting societies, organized labor, investors, and other stakeholders all participated in the development of what are now known as the GRI Sustainability Guidelines. The guidelines are composed of both qualitative and quantitative indicators. The guidelines and indicators were not designed, nor intended, to replace Generally Accepted Accounting Principles (GAAP) or other mandatory financial reporting requirements. Rather, the guidelines are intended to complement GAAP by providing the basis for credibility and precision in non-financial reporting.Some firms develop and apply their own sets of metrics. Royal Dutch Shell spent in excess of $1 million to develop its environmental and social responsibility metrics. Instead of picking numbers from established sources, such as the GRI template, Shell held 33 meetings with stakeholders and shareholders.The Shell metrics effort was widely reported in a number of newsletters and articles. See, for example, http://www.juergendaum.com/news/05_12_2001.htm. The derived metrics became a much more accurate reflection of what its customers and other stakeholders wanted, and thus, a true reflection of its strategy, mission, and vision.One of the key benefits for an organization using a Balanced Scorecard is improved strategic alignment. The Balanced Scorecard can be an effective format for reporting TBL indicators, as it illustrates the cause-and-effect relationship between good corporate citizenship and a successful business. Enterprises can use the combination of the Balanced Scorecard and CSR to help create a competitive advantage by letting decision makers know whether they are truly entering into a CSR virtuous cycle in which economic and environmental performance, coupled with social impacts, combine to improve organizational performance exponentially.What do we mean by virtuous cycle? A company could begin to compete on cost leadership as a result of improved technology and effective and efficient processes, which leads to improved ecological protection, which results in better risk management and a lower cost of capital. Alternatively, a company could differentiate from its competitors’ values and performance as a result of its community-building activities, which can improve corporate reputation, result in improved brand equity, creating customer satisfaction, which increases sales. The move to a broad differentiation strategy can also be achieved through extensive knowledge of green consumers and leveraging their information needs through appropriate CSR reporting to improve brand equity and reputation. These examples are designed to illustrate the interrelationships in an organization’s triple bottom line.Several organizations have already recognized this powerful combination and have adapted or introduced a Balanced Scorecard that includes CSR elements to successfully implement strategy reflective of evolving societal values. Many managers are familiar with the Balanced Scorecard and thus have a tool at their disposal to help them navigate the sometimes foggy worlds of strategy and CSR. The Balanced Scorecard can help organizations strategically manage the alignment of cause-and-effect relationships of external market forces and impacts with internal CSR drivers, values, and behavior. It is this alignment combined with CSR reporting that can enable enterprises to implement either broad differentiation or cost leadership strategies. If managers believe there will be resistance to stand-alone CSR initiatives, they can use the Balanced Scorecard to address CSR opportunities and challenges. If you are so motivated, the managerial skills and tools you gain through an understanding of P-O-L-C will help you to lead your organization toward a CSR virtuous cycle of cognizant benefits, understanding precisely how and why their company’s profits are made.KEY TAKEAWAYThis section explored the challenges and opportunities of incorporating social and environmental goals and objectives into the P-O-L-C process. Many organizations refer to social and environmental activities as corporate social responsibility (CSR). For many firms, general operating goals and objectives have not been well integrated with strategy, vision, and mission, so it may not be surprising that social and environmental goals, in particular, have not gained much traction. However, when an organization uses tools such as the Balanced Scorecard to manage goals and objectives, then there is a coherent vehicle for incorporating social and environmental objectives in the mix as well.EXERCISESWhat does corporate social responsibility mean?Why might it be challenging for organizations to effectively set and achieve social and environmental goals and objectives, in addition to their operating goals and objectives?Why might an organization pay greater attention to adding social and environmental goals and objectives today than, say, 10 years ago?What is meant by “virtuous cycle” with respect to CSR?How does a Balanced Scorecard help managers develop social and environmental goals and objectives?In what ways does achievement of CSR goals and objectives strategically differentiate an organization?6.7 Your Personal Balanced ScorecardLEARNING OBJECTIVESDevelop a more personalized understanding of the Balanced Scorecard concept.See how your vision and mission can be linked to your goals and objectives.Be able to develop S-M-A-R-T goals and objectives.One of the powerful tools in a manager’s tool kit is the Balanced Scorecard, a model that groups goals, objectives, and metrics into the areas of financial, customer, internal business process, and learning and growth. As you know, the scorecard is effective because it helps managers link vision, mission, and strategy to the goals and objectives that employees strive to achieve. What you may not know, however, is that you can apply the scorecard to your personal and professional objectives. Through this process you might also learn more about where and how a Balanced Scorecard can be applied in an organizational context in your role as a manager or employee. That is the purpose of this section.From an Organizational Scorecard to a Personal OneThe Balanced Scorecard, championed by Kaplan and Norton, can be translated into your own individual scorecard, one that helps you achieve your personal and professional goals and objectives. Recall that the scorecard for an organization starts with vision and mission, followed by goals (financial, internal business processes, customer, and learning and growth), which have corresponding objectives, metrics, and tactical activities. When these components are applied to you as an individual, you might see the pieces of the scorecard labeled as shown in the following figure. Let’s review each piece together.Figure 6.14 My Balanced ScorecardPersonal Mission, Vision, and StrategyAs with an organization’s mission and vision, your personal mission and vision reflect who you are and where you want to go. Mission reflects your values and philosophy of life. Vision captures what you want to achieve. Which values and principles guide your way? What are your most deeply cherished aspirations? What do you want to achieve? How do you distinguish yourself in society and among your peers and family? If you were to read your biography in 20 years, what would you want it to say about you?Personal Goals and Key RolesGoals and roles are set out with respect to the areas of financial, others, individual strengths, and learning and growth. Financial, for instance, captures your needs and aspirations about money, as well as the financial obligations that you might have as a result of your role of caring for a parent, sibling, or child. Others reflect goals that you have in relation to other individuals or society at large. How do you want to be seen? Also, in terms of roles, what do relations with your partner, children, friends, employer, colleagues, and others imply for your goals? Individual strengths represent the internal perspective, reflecting goals related to your health and well-being. This category also reflects those strengths that you wish to be distinguishing features. Finally, learning and growth refer to your skills, abilities, and aims with regard to personal and professional learning and growth. How can you learn and remain successful in the future? What type of skills and learning are required now, for future aspired roles?Using SMART CriteriaThese portions of the scorecard get more specific in terms of which measurable short-term personal results you want to achieve. What are the most important changes you want to tackle in your career? Similarly, you will want to answer how you can measure your personal results. What values do you have to obtain, and what are your specific targets?For personal objectives and performance measures to be most effective, you might try seeing how they measure up to SMART criteria. These characteristics, based on specific, measurable, attainable, realistic, and time bound yield the acronym SMART.Drucker, P. (1954). The Practice of management. New York: HarperCollins. Drucker coined the usage of the acronym for SMART objectives while discussing objective-based management. Here is how to tell if your objectives, measures, and targets are SMART.SpecificA specific objective has a much greater chance of being accomplished than a general one. To set a specific objective, you must answer the six “W” questions:Who: Who is involved?What: What do I want to accomplish?Where: Identify a location.When: Establish a time frame.Which: Identify requirements and constraints.Why: Specific reasons, purpose or benefits of accomplishing the objective.EXAMPLE: A personal goal would be, “Get in shape.” But a specific objective would say, “Get into good enough shape that 6 months from now I can hike to the summit of a 14,000-foot mountain and back in one day. To do so, by next Monday I will join a health club within 5 miles of home and work out for at least 45 minutes 3 days a week for 3 months, then reassess my progress.”We thank Elsa Peterson, our developmental editor, for providing this example based on one of her friend’s personal experiences. Another real-life comparable example is shown here: Manochio, M. (2008, September 30). http://www.dailyrecord.com/apps/pbcs.dll/article?AID=/20080930/COMMUNITIES12/809300311 (accessed November 10, 2008).MeasurableEstablish concrete criteria for measuring progress toward the attainment of each objective you set. When you measure your progress, you stay on track, reach your target dates, and experience the exhilaration of achievement that spurs you on to continued effort required to reach your objective.To determine whether your objective is measurable, ask questions such as: How much? How many? How will I know when it is accomplished? Notice that the specific version of the “get in shape” objective includes metrics of time and distance.AttainableWhen you identify objectives that are most important to you, you begin to figure out ways you can make them come true. You develop the attitudes, abilities, skills, and financial capacity to reach them. You begin seeing previously overlooked opportunities to bring yourself closer to the achievement of your goals and objectives.You can attain most any objective you set when you plan your steps wisely and establish a time frame that allows you to carry out those steps. Goals that may have seemed far away and out of reach eventually move closer and become attainable, not because your goals shrink but because you grow and expand to match them through the achievement of nearer-term objectives. When you list your objectives, you build your self-image. You see yourself as worthy of these goals and objectives and develop the traits and personality that allow you to possess them.Notice that the “get in shape” example outlines steps toward being able to climb the mountain.RealisticTo be realistic, an objective must represent an objective toward which you are both willing and able to work. An objective can be both high and realistic; you are the only one who can decide just how high your objective should be. But be sure that every objective represents substantial progress. A high objective is frequently easier to reach than a low one because a low objective exerts low motivational force. Some of the hardest jobs you ever accomplished actually seem easy simply because they were a labor of love.Your objective is probably realistic if you truly believe that it can be accomplished. Additional ways to know whether your objective is realistic is to determine whether you have accomplished anything similar in the past or ask yourself what conditions would have to exist to accomplish this objective.You might decide whether an objective to climb a 14,000-foot mountain is realistic by considering whether people of your age and ability have been able to do it.TimelyAn objective should be grounded within a time frame. With no time frame tied to it, there’s no sense of urgency. If you want to lose 10 pounds, when do you want to lose it by? “Someday” won’t work. But if you anchor it within a time frame, “by May 1st,” then you’ve set your unconscious mind into motion to begin working on the objective.T can also stand for Tangible.An objective is tangible when you can experience it with one of the senses, that is, taste, touch, smell, sight, or hearing. When your objective is tangible, you have a better chance of making it specific and measurable and thus attainable.The objective of climbing the mountain is both grounded in a time frame—six months from now—and tangible, in that you will either experience climbing the mountain successfully or not.Personal Improvement ActivitiesThe next step is implementation. One way to think about implementation of your Balanced Scorecard is through the plan-do-act-dare cycle (PDAD cycle), to be followed continuously.Rampersad. 2005. Personal Balanced Scorecard: The way to individual happiness, personal integrity, and organizational effectiveness. Charlotte, NC: Information Age Publishing. As summarized in the following figure, the PDAD cycle consists of the following four phases:Figure 6.15 The PDAD CyclePlanFormulate or update your scorecard, which focuses on your work as well as on your spare time. This spans vision and mission through personal objectives and performance metrics.DoStart with a simple objective from your scorecard with corresponding improvement activity, keeping in mind the priorities that have been identified. Each morning, focus on a selected improvement action that you will strive to implement during the day. Execute the improvement activity with emotional dedication, self-confidence, and willpower and concentrate on the action. This must be in concordance with your present skills. Share your good intentions with a trusted person (spouse, friend, colleague, or manager), who will ask questions and give you honest feedback. Doing is related to acting with purpose and to deliver efforts to realize your objective. Ask often for feedback from the trusted person. This gives you the opportunity to measure the progress you have made. Start with habits, which restrict you, influence your life unfavorably, and deliver poor results.ActCheck whether the improvement activity is working and take action when it is not. Review the results according to the defined personal performance measures and targets, measure your progress, and check to what extent you have realized your personal objectives—as suggested by the “assess my progress” portion of the mountain-climbing goal. If you have not been able to realize your objective, start again. You will improve steadily as it becomes a habit to do good things right the first time and evaluate your scorecard each month with your trusted person. Think of three people who can act as your trusted person, who provide you with inspiration and motivation support for realizing your objectives and improvement actions. Plan to meet with each one of them regularly. Listen enthusiastically to them, brainstorm with them, and take their wise counsel. Develop your skills and competencies to achieve the objectives you selected. Recognize your responsibility to constantly develop yourself. Implement the proven personal improvements, assess the personal results, document the lessons learned, and improve and monitor your actions and thinking continuously. Also think about bringing your personal ambition and your personal behavior into balance, which will result in influencing your ethical behavior. According to Steven Covey, author of The Seven Habits of Highly Effective People, after a few weeks, you will notice small differences in yourself. In two months, the behavioral change will become firmly embedded. After five months, the important personal quality will be yours.DareAccept larger challenges by daring to take on a more difficult objective and corresponding improvement action from your scorecard and get on with it. Take a chance and be conscientious to choose a more challenging objective in line with your improved skills when the current improvement action becomes boring. Enjoy the pleasant experience, and document what you have learned and unlearned during the execution of the improvement action. Refine it, and review your scorecard regularly.KEY TAKEAWAYThe purpose of this section was to help you translate the Balanced Scorecard to your own personal and professional situation. You learned how you might construct the scorecard, and take action to achieve personal results. Through this process, you might also learn more about where and how a Balanced Scorecard can be applied in an organizational context in your role as a manager or employee.EXERCISESWhat can you achieve by applying the concept of a Balanced Scorecard to your personal situation?How similar or different does the scorecard seem to function at an individual level as opposed to an organizational level?What are key characteristics of effective objectives?Why should personal objectives and measures of performance be specific?What are some of the activities you can undertake to implement your scorecard?When is the implementation of a personal Balanced Scorecard completed?

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Published - Fri, 10 Mar 2023

Strategizing - Principles of Management - Chapter 5

Created by - Jenny Clarke

Strategizing - Principles of Management - Chapter 5

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:See how strategy fits in the planning-organizing-leading-controlling (P-O-L-C) framework.Better understand how strategies emerge.Understand strategy as trade-offs, discipline, and focus.Conduct internal analysis to develop strategy.Conduct external analysis to develop strategy.Formulate organizational and personal strategy with the strategy diamond.Strategic management, strategizing for short, is essentially about choice—in terms of what the organization will do and won’t do to achieve specific goals and objectives, where such goals and objectives lead to the realization of a stated mission and vision. Strategy is a central part of the planning function in P-O-L-C. Strategy is also about making choices that provide an organization with some measure of competitive advantage or even a sustainable competitive advantage. For the most part, this chapter emphasizes strategy formulation (answers to the “What should our strategy be?” question) as opposed to strategy implementation (answers to questions about “How do we execute a chosen strategy?”). The central position of strategy is summarized in the following figure. In this chapter, you will learn about strategic management and how it fits in the P-O-L-C framework. You will also learn some of the key internal and external analyses that support the development of good strategies. Finally, you will see how the concept of strategy can be applied to you personally, in addition to professionally.Figure 5.2 The P-O-L-C FrameworkFigure 5.3 Where Strategy Fits in “Planning”5.1 Case in Point: Unnamed Publisher Transforms Textbook IndustryFigure 5.4Unnamed Publisher Cofounder, Jeff ShelstadSource: Used by permission from Unnamed Publisher Inc.Two textbook publishing industry veterans, Jeff Shelstad and Eric Frank, started Unnamed Publisher, a privately held company, in 2007 to be a new and disruptive model for the college textbook market. Traditional business textbook publishers carry a portfolio of 5 to 10 titles per subject and charge premium prices for new textbooks, an average of $1,000 in textbooks for a college student’s first year, according to a recent General Accounting Office (GAO) report. FWK’s strategy aims to turn the traditional model on its head by providing online textbook access free to students (http://www.gone.2012books.lardbucket.org). FWK earns revenues by selling students the digital textbooks in alternate formats, print and audio initially, and also by selling highly efficient and mobile study aids. Despite the fact that professors have rated the academic quality of FWK textbooks as equal to or higher than that of textbooks from traditional publishers, the cost to students is a fraction of current market prices due to the efficiencies of the FWK business model. Moreover, with FWK’s open-source platform, instructors who adopt FWK books for their classes are able to pick and choose the material provided to their students, even if it is from earlier versions of textbooks that have since been revised.Shelstad and Frank founded FWK because they believed that big publishers would continue to experiment and innovate, and enjoy the advantages of scale, capital, content, and brand. But the FWK founders also believed that the pace and nature of change by the big publishers of the textbook industry would remain modest and marginal, held back by an inflexible go-to market strategy, with a reflexive (and shortsighted) exercise of pricing power, outdated business models, intransigent channel partners, existing contracts, and a fear of price cannibalization, as well as the traditional culture and organizational barriers.To seize this perceived market opportunity, FWK designed a strategy based on publishing textbooks around the three main pillars of books that are (1) free, (2) open, and (3) authored by highly respected authors. Ultimately students (or parents) pay for books. Between a publisher and the student is a gatekeeper—the instructor. The first step to revenue is to convince the gatekeeper to assign (“adopt”) an FWK textbook instead of other choices. Only then does FWK establish a relationship with the gatekeeper’s students and earn the opportunity to monetize those relationships through the sale of print books, study aids, user-generated content, and corporate sponsorship. FWK’s strategy, therefore, aims to provide a compelling value proposition to instructors to maximize adoptions and, thus, student relationships.Figure 5.5Source: Used by permission from Unnamed Publisher Inc.How is FWK’s strategy working so far? Through the start of 2010, the FWK strategy has proven effective. New customers and books come online daily and the growth trends are positive. Its first term (fall of 2009), FWK had 40,000 students using its textbooks. This has continued to rise. Several new projects are under way in international business, entrepreneurship, legal environment, and mathematical economics. Media attention to the fledgling FWK has generally been favorable. Social media experts also gave the company accolades. For example, Chris Anderson devoted a page to the FWK business model in his bestselling book Free. Moreover, early user reviews of the product were also very positive. For instance, an instructor who adopted Principles of Management noted, “I highly recommend this book as a primary textbook for…business majors. The overall context is quite appropriate and the search capability within the context is useful. I have been quite impressed [with] how they have highlighted the key areas.” At the same time, opportunities to improve the Web interface still existed, with the same reviewer noting, “The navigation could be a bit more user friendly, however.” FWK uses user input like this to better adjust the strategy and delivery of its model. This type of feedback led the FWK design squad to improve its custom Web interface, so that instructors can more easily change the book. Only time will tell if the $11 million invested in FWK by 2010 will result in the establishment of a new titan in textbook publishing or will be an entrepreneurial miss.Case written by [citation redacted per publisher request]. Based on information from United States Government Accountability Office. (2005, July). College textbooks: Enhanced offering appear to drive recent price increases (GAO-05-806). Retrieved April 22, 2010, from http://www.gao.gov/cgi-bin/getrpt?GAO-05-806; Unnamed Publisher Web site: http://www.gone.2012books.lardbucket.org; Community College Open Textbook Collaborative. (2009). Business reviews. Retrieved April 22, 2010, from http://www.collegeopentextbooks.org/reviews/business.html; Personal interviews with Jeff Shelstad and Eric Frank.DISCUSSION QUESTIONSPlanning is a key component to the P-O-L-C framework. What type of planning do you think the founders of Unnamed Publisher engaged in?What competitive advantages does Unnamed Publisher possess?What are Unnamed Publisher’s key strengths, weaknesses, opportunities, and threats?How might the extensive textbook industry experience the Unnamed Publisher founders possess help or hinder their strategy formulation and ultimate success or failure?Based on Porter’s strategies summarized in the figure below, which type of strategy do you see Unnamed Publisher employing? Support your response.Figure 5.6Source: Porter, M. E. (1980). Competitive Strategy. New York: Free Press.5.2 Strategic Management in the P-O-L-C FrameworkLEARNING OBJECTIVESBe able to define strategic management.Understand how strategic management fits in the P-O-L-C framework.Broadly identify the inputs for strategy formulation.What Is Strategic Management?As you already know, the P-O-L-C framework starts with “planning.” You might also know that planning is related to, but not synonymous with, strategic management. Strategic management reflects what a firm is doing to achieve its mission and vision, as seen by its achievement of specific goals and objectives.A more formal definition tells us that the strategic management process “is the process by which a firm manages the formulation and implementation of its strategy.”Carpenter, M. A., & Sanders, W. G. (2009). Strategic management (p. 8). Upper Saddle River, NJ: Pearson/Prentice-Hall. The strategic management process is “the coordinated means by which an organization achieves its goals and objectives.”Carpenter, M. A., & Sanders, W. G. (2009). Strategic management (p. 10). Upper Saddle River, NJ: Pearson/Prentice-Hall. Others have described strategy as the pattern of resource allocation choices and organizational arrangements that result from managerial decision making.Mintzberg, H. 1978. Patterns in strategy formulation. Management Science, 24, 934–949. Planning and strategy formulation sometimes called business planning, or strategic planning, have much in common, since formulation helps determine what the firm should do. Strategy implementation tells managers how they should go about putting the desired strategy into action.The concept of strategy is relevant to all types of organizations, from large, public companies like GE, to religious organizations, to political parties.Strategic Management in the P-O-L-C FrameworkIf vision and mission are the heart and soul of planning (in the P-O-L-C framework), then strategy, particularly strategy formulation, would be the brain. The following figure summarizes where strategy formulation (strategizing) and implementation fit in the planning and other components of P-O-L-C. We will focus primarily on the strategy formulation aspects of strategic management because implementation is essentially organizing, leading, and controlling P-O-L-C components.Figure 5.7 Strategizing in P-O-L-CYou see that planning starts with vision and mission and concludes with setting goals and objectives. In-between is the critical role played by strategy. Specifically, a strategy captures and communicates how vision and mission will be achieved and which goals and objectives show that the organization is on the right path to achieving them.At this point, even in terms of strategy formulation, there are two aspects of strategizing that you should recognize. The first, corporate strategy answers strategy questions related to “What business or businesses should we be in?” and “How does our business X help us compete in business Y, and vice versa?” In many ways, corporate strategy considers an organization to be a portfolio of businesses, resources, capabilities, or activities. You are probably familiar with McDonald’s, for instance, and their ubiquitous golden arches fast-food outlets. However, you may be less likely to know that McDonald’s owned the slightly upscale burrito vendor Chipotle for several years as well.Carpenter, M. A., & Sanders, W. G. (2008). Fast food chic? The Chipotle burrito. University of Wisconsin Business Case. The McDonald’s corporate strategy helped its managers evaluate and answer questions about whether it made sense for McDonald’s set of businesses to include different restaurants such as McDonald’s and Chipotle. While other food-service companies have multiple outlets—YUM! Brands, for example, owns A&W, Taco Bell, Pizza Hut, Long John Silver’s, and Kentucky Fried Chicken—McDonald’s determined that one brand (McDonald’s) was a better strategy for it in the future, and sold off Chipotle in 2006. The following figure provides a graphic guide to this kind of planning.Figure 5.8 Corporate and Business StrategyThe logic behind corporate strategy is one of synergy and diversification. That is, synergies arise when each of YUM! Brands food outlets does better because they have common ownership and can share valuable inputs into their businesses. Specifically, synergy exists when the interaction of two or more activities (such as those in a business) create a combined effect greater than the sum of their individual effects. The idea is that the combination of certain businesses is stronger than they would be individually because they either do things more cheaply or of higher quality as a result of their coordination under a common owner.Diversification in contrast, is where an organization participates in multiple businesses that are in some way distinct from each other, as Taco Bell is from Pizza Hut, for instance. Just as with a portfolio of stock, the purpose of diversification is to spread out risk and opportunities over a larger set of businesses. Some may be high growth, some slow growth or declining; some may perform worse during recessions, while others perform better. Sometimes the businesses can be very different, such as when fashion sunglass maker Maui Jim diversified into property and casualty insurance through its merger with RLI Corporation.Retrieved October 30, 2008, http://www.secinfo.com/dRqWm.89X3.htm#34f. Perhaps more than a coincidence, RLI was founded some 60 years earlier as Replacement Lens International (later changed to its abbreviation, RLI, in line with its broader insurance products offerings), with the primary business of providing insurance for replacement contact lenses. There are three major diversification strategies: (1) concentric diversification, where the new business produces products that are technically similar to the company’s current product but that appeal to a new consumer group; (2) horizontal diversification, where the new business produces products that are totally unrelated to the company’s current product but that appeal to the same consumer group; and (3) conglomerate diversification, where the new business produces products that are totally unrelated to the company’s current product and that appeal to an entirely new consumer group.Whereas corporate strategy looks at an organization as a portfolio of things, business strategy focuses on how a given business needs to compete to be effective. Again, all organizations need strategies to survive and thrive. A neighborhood church, for instance, probably wants to serve existing members, build new membership, and, at the same time, raise surplus monies to help it with outreach activities. Its strategy would answer questions surrounding the accomplishment of these key objectives. In a for-profit company such as McDonald’s, its business strategy would help it keep existing customers, grow its business by moving into new markets and taking customers from competitors like Taco Bell and Burger King, and do all this at a profit level demanded by the stock market.Strategic InputsSo what are the inputs into strategizing? At the most basic level, you will need to gather information and conduct analysis about the internal characteristics of the organization and the external market conditions. This means an internal appraisal and an external appraisal. On the internal side, you will want to gain a sense of the organization’s strengths and weaknesses; on the external side, you will want to develop some sense of the organization’s opportunities and threats. Together, these four inputs into strategizing are often called SWOT analysis which stands for strengths, weaknesses, opportunities, and threats (see the SWOT analysis figure). It does not matter if you start this appraisal process internally or externally, but you will quickly see that the two need to mesh eventually. At the very least, the strategy should leverage strengths to take advantage of opportunities and mitigate threats, while the downside consequences of weaknesses are minimized or managed.Figure 5.9 SWOT AnalysisSWOT was developed by Ken Andrews in the early 1970s.Andrews, K. (1971). The concept of corporate strategy. Homewood, IL: R. D. Irwin. An assessment of strengths and weaknesses occurs as a part of organizational analysis; that is, it is an audit of the company’s internal workings, which are relatively easier to control than outside factors. Conversely, examining opportunities and threats is a part of environmental analysis—the company must look outside of the organization to determine opportunities and threats, over which it has lesser control.Andrews’s original conception of the strategy model that preceded the SWOT asked four basic questions about a company and its environment: (1) What can we do? (2) What do we want to do? (3) What might we do? and (4) What do others expect us to do?Strengths and WeaknessesA good starting point for strategizing is an assessment of what an organization does well and what it does less well. In general good strategies take advantage of strengths and minimize the disadvantages posed by any weaknesses. Michael Jordan, for instance, is an excellent all-around athlete; he excels in baseball and golf, but his athletic skills show best in basketball. As with Jordan, when you can identify certain strengths that set an organization well apart from actual and potential competitors, that strength is considered a source of competitive advantage. The hardest thing for an organization to do is to develop its competitive advantage into a sustainable competitive advantage where the organization’s strengths cannot be easily duplicated or imitated by other firms, nor made redundant or less valuable by changes in the external environment.Opportunities and ThreatsOn the basis of what you just learned about competitive advantage and sustainable competitive advantage, you can see why some understanding of the external environment is a critical input into strategy. Opportunities assess the external attractive factors that represent the reason for a business to exist and prosper. These are external to the business. What opportunities exist in its market, or in the environment, from which managers might hope the organization will benefit? Threats include factors beyond your control that could place the strategy, or the business, at risk. These are also external—managers typically have no control over them, but may benefit by having contingency plans to address them if they should occur.SWOT Analysis of Unnamed PublisherUnnamed Publisher is a new college textbook company (and the publisher of this POM text!) that operates with the tagline vision of “Free textbooks. Online. Anytime. Anywhere. Anyone.”Retrieved October 28, 2008, from http://www.gone.2012books.lardbucket.org.StrengthsGreat management team.Great college business textbooks.Experienced author pool.Proprietary technology.WeaknessesLimited number of books.New technology.Relatively small firm size.OpportunitiesExternal pressure to lower higher education costs, including textbook prices.Internet savvy students and professors.Professors and students largely displeased with current textbook model.Technology allows textbook customization.ThreatsStrong competitors.Competitors are few, very large, and global.Substitute technologies exist.In a nutshell, SWOT analysis helps you identify strategic alternatives that address the following questions:Strengths and Opportunities (SO)—How can you use your strengths to take advantage of the opportunities?Strengths and Threats (ST)—How can you take advantage of your strengths to avoid real and potential threats?Weaknesses and Opportunities (WO)—How can you use your opportunities to overcome the weaknesses you are experiencing?Weaknesses and Threats (WT)—How can you minimize your weaknesses and avoid threats?Before wrapping up this section, let’s look at a few of the external and internal analysis tools that might help you conduct a SWOT analysis. These tools are covered in greater detail toward the end of the chapter.Internal Analysis ToolsInternal analysis tools help you identify an organization’s strengths and weaknesses. The two tools that we identify here, and develop later in the chapter, are the value chain and VRIO tools. The value chain asks you, in effect, to take the organization apart and identify the important constituent parts. Sometimes these parts take the form of functions, like marketing or manufacturing. For instance, Disney is really good at developing and making money from its branded products, such as Cinderella or Pirates of the Caribbean. This is a marketing function (it is also a design function, which is another Disney strength).Value chain functions are also called capabilities. This is where VRIO comes in. VRIO stands for valuable, rare, inimitable, and organization—basically, the VRIO framework suggests that a capability, or a resource, such as a patent or great location, is likely to yield a competitive advantage to an organization when it can be shown that it is valuable, rare, difficult to imitate, and supported by the organization (and, yes, this is the same organization that you find in P-O-L-C). Essentially, where the value chain might suggest internal areas of strength, VRIO helps you understand whether those strengths will give it a competitive advantage. Going back to our Disney example, for instance, strong marketing and design capabilities are valuable, rare, and very difficult to imitate, and Disney is organized to take full advantage of them.External Analysis ToolsWhile there are probably hundreds of different ways for you to study an organizations’ external environment, the two primary tools are PESTEL and industry analysis. PESTEL, as you probably guessed, is simply an acronym. It stands for political, economic, sociocultural, technological, environmental, and legal environments. Simply, the PESTEL framework directs you to collect information about, and analyze, each environmental dimension to identify the broad range of threats and opportunities facing the organization. Industry analysis, in contrast, asks you to map out the different relationships that the organization might have with suppliers, customers, and competitors. Whereas PESTEL provides you with a good sense of the broader macro-environment, industry analysis should tell you about the organization’s competitive environment and the key industry-level factors that seem to influence performance.KEY TAKEAWAYStrategy formulation is an essential component of planning; it forms the bridge that enables the organization to progress from vision and mission to goals and objectives. In terms of the P-O-L-C framework, strategy formulation is the P (planning) and strategy implementation is realized by O-L-C. Corporate strategy helps to answer questions about which businesses to compete in, while business strategy helps to answer questions about how to compete. The best strategies are based on a thorough SWOT analysis—that is, a strategy that capitalizes on an organization’s strengths, weaknesses, opportunities, and threats.EXERCISESWhat is the difference between strategy formulation and strategy implementation?What is the difference between business strategy and corporate strategy?What are some of the forms of diversification, and what do they mean?What do you learn from a SWOT analysis?In SWOT analysis, what are some of the tools you might use to understand the internal environment (identify strengths and weaknesses)?In SWOT analysis, what are some of the tools you might use to understand the external environment (identify opportunities and threats)?5.3 How Do Strategies Emerge?LEARNING OBJECTIVESUnderstand the difference between intended and realized strategy.Understand how strategy is made.Understand the need for a balance between strategic design and emergence.How do the strategies we see in organizations come into being? In this section, you will learn about intended and realized strategies. The section concludes with discussion of how strategies are made.Intended and Realized StrategiesThe best-laid plans of mice and men often go awry.Robert Burns, “To a Mouse,” 1785This quote from English poet Robert Burns is especially applicable to strategy. While we have been discussing strategy and strategizing as if they were the outcome of a rational, predictable, analytical process, your own experience should tell you that a fine plan does not guarantee a fine outcome. Many things can happen between the development of the plan and its realization, including (but not limited to): (1) the plan is poorly constructed, (2) competitors undermine the advantages envisioned by the plan, or (3) the plan was good but poorly executed. You can probably imagine a number of other factors that might undermine a strategic plan and the results that follow.How organizations make strategy has emerged as an area of intense debate within the strategy field. Henry Mintzberg and his colleagues at McGill University distinguish intended, deliberate, realized, and emergent strategies.Mintzberg, H. (1987, July–August). Crafting strategy. Harvard Business Review, pp. 66–75; Mintzberg, H. (1996). The entrepreneurial organization. In H. Mintzberg & J. B. Quinn (Eds.), The strategy process (3rd ed.). Englewood Cliffs, NJ: Prentice-Hall; Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6, 257–272.These four different aspects of strategy are summarized in the following figure. Intended strategy is strategy as conceived by the top management team. Even here, rationality is limited and the intended strategy is the result of a process of negotiation, bargaining, and compromise, involving many individuals and groups within the organization. However, realized strategy—the actual strategy that is implemented—is only partly related to that which was intended (Mintzberg suggests only 10%–30% of intended strategy is realized).Figure 5.11 Intended, Deliberate, Realized, and Emergent StrategiesThe primary determinant of realized strategy is what Mintzberg terms emergent strategy—the decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt to changing external circumstances.See Mintzberg, H. Patterns in strategy formulation. (1978). Management Science, 24, 934–948; Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic Management Journal, 6, 257–272. (1985); and Mintzberg, H. (1988). Mintzberg on management: Inside our strange world of organizations. New York: Free Press. Thus, the realized strategy is a consequence of deliberate and emerging factors. Analysis of Honda’s successful entry into the U.S. motorcycle market has provided a battleground for the debate between those who view strategy making as primarily a rational, analytical process of deliberate planning (the design school) and those that envisage strategy as emerging from a complex process of organizational decision making (the emergence or learning school).The two views of Honda are captured in two Harvard cases: Honda [A]. (1989). Boston: Harvard Business School, Case 384049, and Honda [B]. (1989). Boston: Harvard Business School, Case 384050.Although the debate between the two schools continues,For further debate of the Honda case, see Mintzberg, H., Pascale, R. T., Goold, M., & Rumelt, Richard P. (1996, Summer). The Honda effect revisited. California Management Review, 38, 78–117. we hope that it is apparent to you that the central issue is not “Which school is right?” but “How can the two views complement one another to give us a richer understanding of strategy making?” Let us explore these complementarities in relation to the factual question of how strategies are made and the normative question of how strategies should be made.The Making of StrategyHow Is Strategy Made?Robert Grant, author of Contemporary Strategy Analysis, shares his view of how strategy is made as follows.Grant, R. M. (2002). Contemporary strategy analysis (4th ed., pp. 25–26). New York: Blackwell. For most organizations, strategy making combines design and emergence. The deliberate design of strategy (through formal processes such as board meetings and strategic planning) has been characterized as a primarily top-down process. Emergence has been viewed as the result of multiple decisions at many levels, particularly within middle management, and has been viewed as a bottom-up process. These processes may interact in interesting ways. At Intel, the key historic decision to abandon memory chips and concentrate on microprocessors was the result of a host of decentralized decisions taken at divisional and plant level that were subsequently acknowledged by top management and promulgated as strategy.Burgelman, R. A., & Grove, A. (1996, Winter). Strategic dissonance. California Management Review, 38, 8–28.In practice, both design and emergence occur at all levels of the organization. The strategic planning systems of large companies involve top management passing directives and guidelines down the organization and the businesses passing their draft plans up to corporate. Similarly, emergence occurs throughout the organization—opportunism by CEOs is probably the single most important reason why realized strategies deviate from intended strategies. What we can say for sure is that the role of emergence relative to design increases as the business environment becomes increasingly volatile and unpredictable.Organizations that inhabit relatively stable environments—the Roman Catholic Church and national postal services—can plan their strategies in some detail. Organizations whose environments cannot be forecast with any degree of certainty—a gang of car thieves or a construction company located in the Gaza Strip—can establish only a few strategic principles and guidelines; the rest must emerge as circumstances unfold.What’s the Best Way to Make Strategy?Mintzberg’s advocacy of strategy making as an iterative process involving experimentation and feedback is not necessarily an argument against the rational, systematic design of strategy. The critical issues are, first, determining the balance of design and emergence and, second, how to guide the process of emergence. The strategic planning systems of most companies involve a combination of design and emergence. Thus, headquarters sets guidelines in the form of vision and mission statements, business principles, performance targets, and capital expenditure budgets. However, within the strategic plans that are decided, divisional and business unit managers have considerable freedom to adjust, adapt, and experiment.KEY TAKEAWAYYou learned about the processes surrounding strategy development. Specifically, you saw the difference between intended and realized strategy, where intended strategy is essentially the desired strategy, and realized strategy is what is actually put in place. You also learned how strategy is ultimately made. Ultimately, the best strategies come about when managers are able to balance the needs for design (planning) with being flexible enough to capitalize on the benefits of emergence.EXERCISESWhat is an intended strategy?What is a realized strategy?Why is it important to understand the difference between intended and realized strategies?Why is there not a perfect match-up between realized and intended strategies?What might interfere with the realization of an intended strategy?How might you manage the balance between design and emergence strategizing processes in an organization?5.4 Strategy as Trade-Offs, Discipline, and FocusLEARNING OBJECTIVESUnderstand the nature of strategic focus.Strategy as trade-offs (Porter).Strategy as discipline (Treacy and Wiersema).This section helps you understand that a strategy provides a company with focus. Strategy is ultimately about choice—what the organization does and does not do. As we’ve seen, vision and mission provide a good sense of direction for the organization, but they are not meant to serve as, or take the place of, the actual strategy. Strategy is about choices, and that eventually means making trade-offs such that the strategy and the firm are distinctive in the eyes of stakeholders. In this section, you will learn about strategic focus—that is, how trade-offs are reconciled—as well as two frameworks for thinking about what such focus might entail.What Is Strategic Focus?While there are different schools of thought about how strategy comes about, researchers generally agree that strategic focus is a common characteristic across successful organizations. Strategic focus is seen when an organization is very clear about its mission and vision and has a coherent, well-articulated strategy for achieving those. When a once high-flying firm encounters performance problems, it is not uncommon to hear business analysts say that the firm’s managers have lost focus on the customers or markets where they were once highly successful. For instance, Dell Computer’s strategy is highly focused around the efficient sale and manufacture of computers and computer peripheral devices. However, during the mid-2000s, Dell started branching out into other products such as digital cameras, DVD players, and flat-screen televisions. As a result, it lost focus on its core sales and manufacturing business, and its performance flagged. As recently as mid-2008, however, Dell has realized a tremendous turnaround: “We are executing on all points of our strategy to drive growth in every product category and in every part of the world,” said a press release from Michael Dell, chairman and CEO. “These results are early signs of our progress against our five strategic priorities. Through a continued focus, we expect to continue growing faster than the industry and increase our revenue, profitability and cash flow for greater shareholder value.”Dell increases revenue and earnings, lowers operating expenses. (2008, May 28). Dell press release. Retrieved November 3, 2008, from http://www.dell.com/content/topics/global.aspx/corp/pressoffice/en/2008/2008_05_29_rr_000?c=us&l=en’s=corp.Dell provides an excellent example of what is meant by strategic focus. This spirit of focus is echoed in the following two parts of this section where we introduce you to the complementary notions of strategy as trade-offs and strategy as discipline.Strategy as Trade-OffsThree of the most widely read books on competitive analysis in the 1980s were Michael Porter’s Competitive Strategy, Competitive Advantage, and Competitive Advantage of Nations.Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. New York: Free Press; Porter, M. (1989). Competitive advantage of nations. New York: Free Press. Porter, M. (1980). Competitive strategy: Techniques for analyzing industries and companies. New York: Free Press, 1980; Porter, M. (2001, March). Strategy and the Internet. Harvard Business Review, pp. 63–78; Retrospective on Michael Porter’s Competitive strategy. (2002). Academy of Management Executive 16(2), 40–65. In his various books, Porter developed three generic strategies that, he argues, can be used singly or in combination to create a defendable position and to outperform competitors, whether they are within an industry or across nations. The strategies are (1) overall cost leadership, (2) differentiation, and (3) focus on a particular market niche.Cost Leadership, Differentiation, and ScopeThese strategies are termed generic because they can be applied to any size or form of business. We refer to them as trade-off strategies because Porter argues that a firm must choose to embrace one strategy or risk not having a strategy at all. Overall lower cost or cost leadership refers to the strategy where a firm’s competitive advantage is based on the bet that it can develop, manufacture, and distribute products more efficiently than competitors. Differentiation refers to the strategy where competitive advantage is based on superior products or service. Superiority arises from factors other than low cost, such as customer service, product quality, or unique style. To put these strategies into context, you might think about Wal-Mart as pursuing a cost-leadership strategy and Harley Davidson as pursuing a differentiation strategy.Porter suggests that another factor affecting a company’s competitive position is its competitive scope. Competitive scope defines the breadth of a company’s target market. A company can have a broad (mass market) competitive scope or a narrow (niche market) competitive scope. A firm following the focus strategy concentrates on meeting the specialized needs of its customers. Products and services can be designed to meet the needs of buyers. One approach to focusing is to service either industrial buyers or consumers but not both. Martin-Brower, the third-largest food distributor in the United States, serves only the eight leading fast-food chains. It is the world’s largest distributor of products to the world’s largest restaurant company—McDonald’s. With its limited customer list, Martin-Brower need only stock a limited product line; its ordering procedures are adjusted to match those of its customers; and its warehouses are located so as to be convenient to customers.Firms using a narrow focus strategy can also tailor advertising and promotional efforts to a particular market niche. Many automobile dealers advertise that they are the largest volume dealer for a specific geographic area. Other car dealers advertise that they have the highest customer satisfaction scores within their defined market or the most awards for their service department.Another differentiation strategy is to design products specifically for a customer. Such customization may range from individually designing a product for a single customer to offering a menu from which customers can select options for the finished product. Tailor-made clothing and custom-built houses include the customer in all aspects of production, from product design to final acceptance, and involve customer input in all key decisions. However, providing such individualized attention to customers may not be feasible for firms with an industry-wide orientation. At the other end of the customization scale, customers buying a new car, even in the budget price category, can often choose not only the exterior and interior colors but also accessories such as CD players, rooftop racks, and upgraded tires.By positioning itself in either broad scope or narrow scope and a low-cost strategy or differentiation strategy, an organization will fall into one of the following generic competitive strategies: cost leadership, cost focus, differentiation, and focused differentiation.Figure 5.13 Porter’s Generic StrategiesSource: Porter, M. E. (1980). Competitive Strategy. New York: Free Press.Cost Leadership/Low CostCost leadership is a low-cost, broad-based market strategy. Firms pursuing this type of strategy must be particularly efficient in engineering tasks, production operations, and physical distribution. Because these firms focus on a large market, they must also be able to minimize costs in marketing and research and development (R&D). A low-cost leader can gain significant market share enabling it to procure a more powerful position relative to both suppliers and competitors. This strategy is particularly effective for organizations in industries where there is limited possibility of product differentiation and where buyers are very price sensitive.Overall cost leadership is not without potential problems. Two or more firms competing for cost leadership may engage in price wars that drive profits to very low levels. Ideally, a firm using a cost-leader strategy will develop an advantage that others cannot easily copy. Cost leaders also must maintain their investment in state-of-the-art equipment or face the possible entry of more cost-effective competitors. Major changes in technology may drastically change production processes so that previous investments in production technology are no longer advantageous. Finally, firms may become so concerned with maintaining low costs that they overlook needed changes in production or marketing.The cost-leadership strategy may be more difficult in a dynamic environment because some of the expenses that firms may seek to minimize are research and development costs or marketing research costs—expenses the firm may need to incur to remain competitive.Focused Low-CostA cost-focus strategy is a low-cost, narrowly focused market strategy. Firms employing this strategy may focus on a particular buyer segment or a particular geographic segment and must locate a niche market that wants or needs an efficient product and is willing to forgo extras to pay a lower price for the product. A company’s costs can be reduced by providing little or no service, providing a low-cost method of distribution, or producing a no-frills product.DifferentiationA differentiation strategy involves marketing a unique product to a broad-based market. Because this type of strategy involves a unique product, price is not the significant factor. In fact, consumers may be willing to pay a high price for a product that they perceive as different. The product difference may be based on product design, method of distribution, or any aspect of the product (other than price) that is significant to a broad group of consumers. A company choosing this strategy must develop and maintain a product perceived as different enough from the competitors’ products to warrant the asking price.Several studies have shown that a differentiation strategy is more likely to generate higher profits than a cost-leadership strategy, because differentiation creates stronger entry barriers. However, a cost-leadership strategy is more likely to generate increases in market share.Focused DifferentiationA differentiation-focus strategy is the marketing of a differentiated product to a narrow market, often involving a unique product and a unique market. This strategy is viable for a company that can convince consumers that its narrow focus allows it to provide better goods and services than its competitors.Differentiation does not allow a firm to ignore costs; it makes a firm’s products less susceptible to cost pressures from competitors because customers see the product as unique and are willing to pay extra to have the product with the desirable features. Differentiation can be achieved through real product features or through advertising that causes the customer to perceive that the product is unique.Differentiation may lead to customer brand loyalty and result in reduced price elasticity. Differentiation may also lead to higher profit margins and reduce the need to be a low-cost producer. Since customers see the product as different from competing products and they like the product features, customers are willing to pay a premium for these features. As long as the firm can increase the selling price by more than the marginal cost of adding the features, the profit margin is increased. Firms must be able to charge more for their differentiated product than it costs them to make it distinct, or else they may be better off making generic, undifferentiated products. Firms must remain sensitive to cost differences. They must carefully monitor the incremental costs of differentiating their product and make certain the difference is reflected in the price.Firms pursuing a differentiation strategy are vulnerable to different competitive threats than firms pursuing a cost-leader strategy. Customers may sacrifice features, service, or image for cost savings. Price-sensitive customers may be willing to forgo desirable features in favor of a less costly alternative. This can be seen in the growth in popularity of store brands and private labels. Often, the same firms that produce name-brand products produce the private-label products. The two products may be physically identical, but stores are able to sell the private-label products for a lower price because very little money was put into advertising to differentiate the private-label product.Imitation may also reduce the perceived differences between products when competitors copy product features. Thus, for firms to be able to recover the cost of marketing research or R&D, they may need to add a product feature that is not easily copied by a competitor.A final risk for firms pursuing a differentiation strategy is changing consumer tastes. The feature that customers like and find attractive about a product this year may not make the product popular next year. Changes in customer tastes are especially obvious in the fashion industry. For example, although Ralph Lauren’s Polo has been a very successful brand of apparel, some younger consumers have shifted to Tommy Hilfiger and other youth-oriented brands.For a variety of reasons, including the differences between intended versus realized strategies discussed in an earlier section, none of these competitive strategies is guaranteed to achieve success. Some companies that have successfully implemented one of Porter’s generic strategies have found that they could not sustain the strategy. Several risks associated with these strategies are based on evolved market conditions (buyer perceptions, competitors, etc.).Straddling Positions or Stuck in the Middle?Can forms of competitive advantage be combined? That is, can a firm straddle strategies so that it is simultaneously the low-cost leader and a differentiator? Porter asserts that a successful strategy requires a firm to stake out a market position aggressively and that different strategies involve distinctly different approaches to competing and operating the business. Some research suggests that straddling strategies is a recipe for below-average profitability compared to the industry. Porter also argues that straddling strategies is an indication that the firm’s managers have not made necessary choices about the business and its strategy. A straddling strategy may be especially dangerous for narrow scope firms that have been successful in the past, but then start neglecting their focus.An organization pursuing a differentiation strategy seeks competitive advantage by offering products or services that are unique from those offered by rivals, either through design, brand image, technology, features, or customer service. Alternatively, an organization pursuing a cost-leadership strategy attempts to gain competitive advantage based on being the overall low-cost provider of a product or service. To be “all things to all people” can mean becoming “stuck in the middle” with no distinct competitive advantage. The difference between being “stuck in the middle” and successfully pursuing combination strategies merits discussion. Although Porter describes the dangers of not being successful in either cost control or differentiation, some firms have been able to succeed using combination strategies.Research suggests that, in some cases, it is possible to be a cost leader while maintaining a differentiated product. Southwest Airlines has combined cost-cutting measures with differentiation. The company has been able to reduce costs by not assigning seating and by eliminating meals on its planes. It has also been able to promote in its advertising that its fares are so low that checked bags fly free, in contrast to the fees that competitors such as American and United charge for checked luggage. Southwest’s consistent low-fare strategy has attracted a significant number of passengers, allowing the airline to succeed.Another firm that has pursued an effective combination strategy is Nike. You may think that Nike has always been highly successful, but it has actually weathered some pretty aggressive competitive assaults. For instance, when customer preferences moved to wide-legged jeans and cargo pants, Nike’s market share slipped. Competitors such as Adidas offered less expensive shoes and undercut Nike’s price. Nike’s stock price dropped in 1998 to half its 1997 high. However, Nike achieved a turnaround by cutting costs and developing new, distinctive products. Nike reduced costs by cutting some of its endorsements. Company research suggested the endorsement by the Italian soccer team, for example, was not achieving the desired results. Michael Jordan and a few other “big name” endorsers were retained while others, such as the Italian soccer team, were eliminated, resulting in savings estimated at over $100 million. Laying off 7% of its 22,000 employees allowed the company to lower costs by another $200 million, and inventory was reduced to save additional money. As a result of these moves, Nike reported a 70% increase in earnings for the first quarter of 1999 and saw a significant rebound in its stock price. While cutting costs, the firm also introduced new products designed to differentiate Nike’s products from the competition.Some industry environments may actually call for combination strategies. Trends suggest that executives operating in highly complex environments, such as health care, do not have the luxury of choosing exclusively one strategy over another. The hospital industry may represent such an environment, as hospitals must compete on a variety of fronts. Combination (i.e., more complicated) strategies are both feasible and necessary to compete successfully. For instance, reimbursement to diagnosis-related groups, and the continual lowering of reimbursement ceilings have forced hospitals to compete on the basis of cost. At the same time, many of them jockey for position with differentiation based on such features as technology and birthing rooms. Thus, many hospitals may need to adopt some form of hybrid strategy to compete successfully.Walters, B. A., & Bhuian, S. (2004). Complexity absorption and performance: A structural analysis of acute-care hospitals. Journal of Management, 30, 97–121.Strategy as DisciplineWhile Michael Porter’s generic strategies were introduced in the 1980s and still dominate much of the dialogue about strategy and strategizing, a complementary approach was offered more recently by CSC Index consultants Michael Treacy and Fred Wiersema. Their value disciplines model is quite similar to the three generic strategies from Porter (cost leadership, differentiation, focus). However, there is at least one major difference. According to the value disciplines model, no discipline may be neglected: threshold levels on the two disciplines that are not selected must be maintained. According to Porter, companies that act like this run a risk of getting “stuck in the middle.”In their book, The Discipline of Market Leaders, they offered four rules that competing companies must obey with regard to strategy formulation:Treacy, M., & Wiersema, F. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market. Reading, M Addison-Wesley.Provide the best offer in the marketplace, by excelling in one specific dimension of value. Market leaders first develop a value proposition, one that is compelling and unmatched.Maintain threshold standards on other dimensions of value. You can’t allow performance in other dimensions to slip so much that it impairs the attractiveness of your company’s unmatched value.Dominate your market by improving the value year after year. When a company focuses all its assets, energies, and attention on delivering and improving one type of customer value, it can nearly always deliver better performance in that dimension than another company that divides its attention among more than one.Build a well-tuned operating model dedicated to delivering unmatched value. In a competitive marketplace, the customer value must be improved. This is the imperative of the market leader. The operating model is the key to raising and resetting customer expectation.What Are Value Disciplines?Treacy and Wiersema describe three generic value disciplines: operational excellence, product leadership, and customer intimacy. As with Porter’s perspective about the importance of making trade-offs, any company must choose one of these value disciplines and consistently and vigorously act on it, as indicated by the four rules mentioned earlier.Operational ExcellenceThe case study that their book uses to illustrate the “operational excellence” value discipline is AT&T’s experience in introducing the Universal Card, a combined long-distance calling card and general purpose credit card, featuring low annual fees and customer-friendly service.Key characteristics of the strategy are superb operations and execution, often by providing a reasonable quality at a very low price, and task-oriented vision toward personnel. The focus is on efficiency, streamlined operations, supply chain management, no frills, and volume. Most large international corporations are operating according to this discipline. Measuring systems are important, as is extremely limited variation in product assortment.Product LeadershipFirms that do this strategy well are very strong in innovation and brand marketing. Organization leaders demonstrate a recognition that the company’s current success and future prospects lie in its talented product design people and those who support them. The company operates in dynamic markets. The focus is on development, innovation, design, time to market, and high margins in a short time frame. Company cultures are flexible to encourage innovation. Structure also encourages innovation through small ad hoc working groups, an “experimentation is good” mind-set, and compensation systems that reward success. Intel, the leading computer chip company, is a great example of a firm pursuing a successful product leadership strategy.Customer IntimacyCompanies pursuing this strategy excel in customer attention and customer service. They tailor their products and services to individual or almost individual customers. There is large variation in product assortment. The focus is on: customer relationship management (CRM), deliver products and services on time and above customer expectations, lifetime value concepts, reliability, being close to the customer. Decision authority is given to employees who are close to the customer. The operating principles of this value discipline include having a full range of services available to serve customers upon demand—this may involve running what the authors call a “hollow company,” where a variety of goods or services are available quickly through contract arrangements, rather than the supplier business having everything in stock all the time.The recent partnership between Airborne Express, IBM, and Xerox is a great example of an effective customer intimacy strategy. Airborne also provides centralized control to IBM and Xerox part-distribution networks. Airborne provides Xerox and IBM with a central source of shipment data and performance metrics. The air-express carrier also manages a single, same-day delivery contract for both companies. In addition, Airborne now examines same-day or special-delivery requirements and recommends a lower-priced alternative where appropriate.Retrieved November 3, 2008, from http://www.logisticsmgmt.com/article/CA145552.html.Only One DisciplineTreacy and Wiersema maintain that, because of the focus of management time and resources that is required, a firm can realistically choose only one of these three value disciplines in which to specialize. This logic is similar to Porter’s in that firms that mix different strategies run the risk of being “stuck in the middle.” Most companies, in fact, do not specialize in any of the three, and thus they realize only mediocre or average levels of achievement in each area.The companies that do not make the hard choices associated with focus are in no sense market leaders. In today’s business environment of increased competition and the need more than ever before for competitive differentiation, their complacency will not lead to increased market share, sales, or profits.“When we look at these managers’ businesses [complacent firms], we invariably find companies that don’t excel, but are merely mediocre on the three disciplines…What they haven’t done is create a breakthrough on any one dimension to reach new heights of performance. They have not traveled past operational competence to reach operational excellence, past customer responsiveness to achieve customer intimacy, or beyond product differentiation to establish product leadership. To these managers we say that if you decide to play an average game, to dabble in all areas, don’t expect to become a market leader.”Treacy, M., & Wiersema, F. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market (p. 40). Reading, M Addison-Wesley.Within the context of redesigning the operating model of a company to focus on a particular value discipline, Treacy and Wiersema discuss creating what they call “the cult of the customer.” This is a mind-set that is oriented toward putting the customer’s needs as a key priority throughout the company, at all levels. They also review some of the challenges involved in sustaining market leadership once it is attained (i.e., avoiding the natural complacency that tends to creep into an operation once dominance of the market is achieved).KEY TAKEAWAYStrategic focus seems to be a common element in the strategies across successful firms. Two prevalent views of strategy where focus is a key component are strategy as trade-offs and strategy as discipline. Michael Porter identifies three flavors of strategy: (1) cost leadership, (2) differentiation, or (3) focus of cost leadership or differentiation on a particular market niche. Firms can straddle these strategies, but such straddling is likely to dilute strategic focus. Strategy also provides discipline. Treacy and Wiersema’s three strategic disciplines are (1) operational excellence, (2) product leadership, and (3) customer intimacy.EXERCISESWhat is strategic focus and why is it important?What are Porter’s three generic strategies?Can a firm simultaneously pursue a low-cost and a differentiation strategy?What are the three value disciplines?What four rules underlie the three value disciplines?How do Porter’s generic strategies differ from, and relate to, the Treacy and Wiersema approaches?5.5 Developing Strategy Through Internal AnalysisLEARNING OBJECTIVESLearn about internal analysis.Understand resources, capabilities, and core competencies.See how to evaluate resources, capabilities, and core competencies using VRIO analysis.In this section, you will learn about some of the basic internal inputs for strategy formulation—starting with the organization’s strengths and weaknesses. We will focus on three aspects of internal analysis here, though you recognize that these should be complemented by external analysis as well. There is no correct order in which to do internal and external analyses, and the process is likely to be iterative. That is, you might do some internal analysis that suggests the need for other external analysis, or vice versa. For the internal environment, it is best to start with an assessment of resources and capabilities and then work your way into the identification of core competences using VRIO analysis.Internal AnalysisBy exploiting internal resources and capabilities and meeting the demanding standards of global competition, firms create value for customers.McEvily, S. K., & Chakravarthy, B. (2002). The persistence of knowledge-based advantage: An empirical test for product performance and technological knowledge. Strategic Management Journal, 23, 285–305; Buckley, P. J., & Carter, M. J. (2000). Knowledge management in global technology markets: Applying theory to practice. Long Range Planning, 33(1), 55–71. Value is measured by a product’s performance characteristics and by its attributes for which customers are willing to pay.Pocket Strategy. (1998). Value (p. 165). London: The Economist Books. Those particular bundles of resources and capabilities that provide unique advantages to the firm are considered core competencies.Prahalad, C. K., and Hamel, G. (1990). The core competence of the organization. Harvard Business Review, 90, 79–93. Core competencies are resources and capabilities that serve as a source of a firm’s competitive advantage over rivals. Core competencies distinguish a company competitively and reflect its personality. Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. As the capacity to take action, core competencies are “crown jewels of a company,” the activities the company performs especially well compared with competitors and through which the firm adds unique value to its goods or services over a long period of time.Hafeez, K., Zhang, Y. B., & Malak, N. (2002). Core competence for sustainable competitive advantage: A structured methodology for identifying core competence. IEEE Transactions on Engineering Management, 49(1), 28–35; Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79–93.Sometimes consistency and predictability provide value to customers, such as the type of value Walgreens drugstores provides. As a Fortune magazine writer noted, “Do you realize that from 1975 to today, Walgreens beat Intel? It beat Intel nearly two to one, GE almost five to one. It beat 3M, Coke, Boeing, Motorola.”Useem, J. (2001, February 19). Most admired: Conquering vertical limits. Fortune, pp. 84–96. Walgreens was able to do this by using its core competencies to offer value desired by its target customer group. Instead of responding to the trends of the day, “During the Internet scare of 1998 and 1999, when slogans of ‘Change or Die!’ were all but graffitied on the subway, Walgreens obstinately stuck to its corporate credo of ‘Crawl, walk, run.’ Its refusal to act until it thoroughly understood the implications of e-commerce was deeply unfashionable, but…Walgreens is the epitome of the inner-directed company.”Useem, J. (2001, February 19). Most admired: Conquering vertical limits. Fortune, pp. 84–96. Thus, Walgreens creates value by focusing on the unique capabilities it has built, nurtured, and continues to improve across time.During the past several decades, the strategic management process was concerned largely with understanding the characteristics of the industry in which the firm competed and, in light of those characteristics, determining how the firm should position itself relative to competitors. This emphasis on industry characteristics and competitive strategy may have understated the role of the firm’s resources and capabilities in developing competitive advantage. In the current competitive landscape, core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage.Hitt, M. A., Nixon, R. D., Clifford, P. G., & Coyne, K. P. (1999). The development and use of strategic resources. In M. A. Hitt, P. G. Clifford, R. D. Nixon, & K. P. Coyne (Eds.), Dynamic Strategic Resources (pp. 1–14). Chichester: Wiley. The core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies. As Clayton Christensen noted, “Successful strategists need to cultivate a deep understanding of the processes of competition and progress and of the factors that undergird each advantage. Only thus will they be able to see when old advantages are poised to disappear and how new advantages can be built in their stead.”Christensen, C. M. (2001). The past and future of competitive advantage. Sloan Management Review, 42(2), 105–109. By drawing on internal analysis and emphasizing core competencies when formulating strategies, companies learn to compete primarily on the basis of firm-specific differences, but they must be aware of how things are changing as well.Resources and CapabilitiesResourcesBroad in scope, resources cover a spectrum of individual, social, and organizational phenomena.Eisenhardt, K., & Martin, J. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21, 1105–1121; Michalisin, M. D., Kline, D. M., & Smith. R. D. (2000). Intangible strategic assets and firm performance: A multi-industry study of the resource-based view, Journal of Business Strategies, 17(2), 91–117. Typically, resources alone do not yield a competitive advantage.West, G. P., & DeCastro, J. (2001). The Achilles heel of firm strategy: Resource weaknesses and distinctive inadequacies. Journal of Management Studies, 38(3), 26–45.; Deeds, D. L., DeCarolis, D., & J. Coombs. (2000). Dynamic capabilities and new product development in high technology ventures: An empirical analysis of new biotechnology firms. Journal of Business Venturing, 15, 211–229; Chi, T. (1994). Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of exchange structure. Strategic Management Journal, 15, 271–290. In fact, the core competencies that yield a competitive advantage are created through the unique bundling of several resources.Berman, S., Down, J., & Hill, C. (2002). Tacit knowledge as a source of competitive advantage in the National Basketball Association. Academy of Management Journal, 45, 13–31. For example, Amazon.com has combined service and distribution resources to develop its competitive advantages. The firm started as an online bookseller, directly shipping orders to customers. It quickly grew large and established a distribution network through which it could ship “millions of different items to millions of different customers.” Compared with Amazon’s use of combined resources, traditional bricks-and-mortar companies, such as Toys “R” Us and Borders, found it hard to establish an effective online presence. These difficulties led them to develop partnerships with Amazon. Through these arrangements, Amazon now handles online presence and the shipping of goods for several firms, including Toys “R” Us and Borders, which now can focus on sales in their stores. Arrangements such as these are useful to the bricks-and-mortar companies because they are not accustomed to shipping so much diverse merchandise directly to individuals.Shepard, S. (2001, April 30). Interview: “The company is not in the stock.” Business Week, pp. 94–96.Some of a firm’s resources are tangible while others are intangible. Tangible resources are assets that can be seen and quantified. Production equipment, manufacturing plants, and formal reporting structures are examples of tangible resources. Intangible resources typically include assets that are rooted deeply in the firm’s history and have accumulated over time. Because they are embedded in unique patterns of routines, intangible resources are relatively difficult for competitors to analyze and imitate. Knowledge, trust between managers and employees, ideas, the capacity for innovation, managerial capabilities, organizational routines (the unique ways people work together), scientific capabilities, and the firm’s reputation for its goods or services and how it interacts with people (such as employees, customers, and suppliers) are all examples of intangible resources.Feldman, M. S. (2000). Organizational routines as a source of continuous change, Organization Science, 11, 611–629; Knott, A. M., & McKelvey, B. (1999). Nirvana efficiency: A comparative test of residual claims and routines. Journal of Economic Behavior & Organization, 38, 365–383. The four types of tangible resources are financial, organizational, physical, and technological. The three types of intangible resources are human, innovation, and reputational.As a manager or entrepreneur, you will be challenged to understand fully the strategic value of your firm’s tangible and intangible resources. The strategic value of resources is indicated by the degree to which they can contribute to the development of core competencies, and, ultimately, competitive advantage. For example, as a tangible resource, a distribution facility is assigned a monetary value on the firm’s balance sheet. The real value of the facility, however, is grounded in a variety of factors, such as its proximity to raw materials and customers, but also in intangible factors such as the manner in which workers integrate their actions internally and with other stakeholders, such as suppliers and customers.Gavetti, G., & Levinthal, D. (2000). Looking forward and looking backward: Cognitive and experimental search. Administrative Science Quarterly, 45, 113–137; Coff, R. W. (1999). How buyers cope with uncertainty when acquiring firms in knowledge-intensive industries: Caveat emptor. Organization Science, 10, 144–161; Marsh, S. J., & Ranft, A. L. (1999). Why resources matter: An empirical study of knowledge-based resources on new market entry. In M. A. Hitt, P. G. Clifford, R. D. Nixon, & K. P. Coyne (Eds.), Dynamic strategic resources (pp. 43–66). Chichester: Wiley.CapabilitiesCapabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve a desired end state.Helfat, C. E., & Raubitschek, R. S. (2000). Product sequencing: Co-evolution of knowledge, capabilities, and products. Strategic Management Journal, 21, 961–979. The glue that holds an organization together, capabilities emerge over time through complex interactions among tangible and intangible resources. Capabilities can be tangible, like a business process that is automated, but most of them tend to be tacit and intangible. Critical to forming competitive advantages, capabilities are often based on developing, carrying, and exchanging information and knowledge through the firm’s human capital.Hitt, M. A., Bierman, L., Shimizu, K., & Kochhar, R. (2001) Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management Journal, 44(1), 13–28; Hitt, M. A., Ireland, R. D., & Lee, H. (2000). Technological learning, knowledge management, firm growth and performance: An introductory essay. Journal of Engineering and Technology Management, 17, 231–246; Hoopes, D. G., & Postrel, S. (1999). Shared knowledge: “Glitches,” and product development performance. Strategic Management Journal, 20, 837–865; Quinn, J. B. (1994). The Intelligent Enterprise. New York: Free Press. Because a knowledge base is grounded in organizational actions that may not be explicitly understood by all employees, repetition and practice increase the value of a firm’s capabilities.The foundation of many capabilities lies in the skills and knowledge of a firm’s employees and, often, their functional expertise. Hence, the value of human capital in developing and using capabilities and, ultimately, core competencies cannot be overstated. Firms committed to continuously developing their people’s capabilities seem to accept the adage that “the person who knows how will always have a job. The person who knows why will always be his boss.”Thoughts on the business of life. (1999, May 17). Forbes, p. 352.Global business leaders increasingly support the view that the knowledge possessed by human capital is among the most significant of an organization’s capabilities and may ultimately be at the root of all competitive advantages. But firms must also be able to use the knowledge that they have and transfer it among their operating businesses.Argote, L., & Ingram, P. (2000). Knowledge transfer: A basis for competitive advantage in firms. Organizational Behavior and Human Decision Processes, 82, 150–169. For example, researchers have suggested that “in the information age, things are ancillary, knowledge is central. A company’s value derives not from things, but from knowledge, know-how, intellectual assets, competencies—all of it embedded in people.”Dess, G. G., & Picken, J. C. (1999). Beyond productivity. New York: AMACOM. Given this reality, the firm’s challenge is to create an environment that allows people to fit their individual pieces of knowledge together so that, collectively, employees possess as much organizational knowledge as possible.Coy, P. (2002, Spring). High turnover, high risk [Special Issue]. Business Week, p. 24.To help them develop an environment in which knowledge is widely spread across all employees, some organizations have created the new upper-level managerial position of chief learning officer (CLO). Establishing a CLO position highlights a firm’s belief that “future success will depend on competencies that traditionally have not been actively managed or measured—including creativity and the speed with which new ideas are learned and shared.”Baldwin, T. T., & Danielson, C. C. (2000). Building a learning strategy at the top: Interviews with ten of America’s CLOs. Business Horizons, 43(6), 5–14. In general, the firm should manage knowledge in ways that will support its efforts to create value for customers.Kuratko, D. F., Ireland, R. D., & Hornsby, J. S. (2001). Improving firm performance through entrepreneurial actions: Acordia’s corporate entrepreneurship strategy. Academy of Management Executive, 15(4), 60–71; Hansen, M. T., Nhoria, N., & Tierney, T. (1999). What’s your strategy for managing knowledge? Harvard Business Review, 77(2), 106–116.Figure 5.15 The Value ChainAdapted from Porter, M. (1985). Competitive Advantage. New York: Free Press. Exhibit is creative commons licensed at http://en.wikipedia.org/wiki/Image:ValueChain.PNG.Capabilities are often developed in specific functional areas (such as manufacturing, R&D, and marketing) or in a part of a functional area (for example, advertising). The value chain, popularized by Michael Porter’s book Competitive Advantage, is a useful tool for taking stock of organizational capabilities. A value chain is a chain of activities. In the value chain, some of the activities are deemed to be primary, in the sense that these activities add direct value. In the preceding figure, primary activities are logistics (inbound and outbound), marketing, and service. Support activities include how the firm is organized (infrastructure), human resources, technology, and procurement. Products pass through all activities of the chain in order, and at each activity, the product gains some value. A firm is effective to the extent that the chain of activities gives the products more added value than the sum of added values of all activities.It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds to much of the value of the end product, since a rough diamond is significantly less valuable than a cut, polished diamond. Research suggests a relationship between capabilities developed in particular functional areas and the firm’s financial performance at both the corporate and business-unit levels,Hitt, M. A., & Ireland, R. D. (1986). Relationships among corporate level distinctive competencies, diversification strategy, corporate structure, and performance. Journal of Management Studies, 23, 401–416; Hitt, M. A., & Ireland, R. D. (1985). Corporate distinctive competence, strategy, industry, and performance. Strategic Management Journal, 6, 273–293; Hitt, M. A., Ireland, R. D., & Palia, K. A. (1982). Industrial firms’ grand strategy and functional importance. Academy of Management Journal, 25, 265–298; Hitt, M. A., Ireland, R. D., & Stadter, G. (1982). Functional importance and company performance: Moderating effects of grand strategy and industry type. Strategic Management Journal, 3, 315–330; Snow, C. C., & Hrebiniak, E. G. (1980). Strategy, distinctive competence, and organizational performance. Administrative Science Quarterly, 25, 317–336. suggesting the need to develop capabilities at both levels.VRIO AnalysisGiven that almost anything a firm possesses can be considered a resource or capability, how should you attempt to narrow down the ones that are core competencies, and explain why firm performance differs? To lead to a sustainable competitive advantage, a resource or capability should be valuable, rare, inimitable (including nonsubstitutable), and organized. This VRIO framework is the foundation for internal analysis.VRIO analysis is at the core of the resource-based view of the firm. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171–180. Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 19, 99–120. VRIO is an acronym for valuable, rare, inimitable, and organization.If you ask managers why their firms do well while others do poorly, a common answer is likely to be “our people.” But this is really not an answer. It may be the start of an answer, but you need to probe more deeply—what is it about “our people” that is especially valuable? Why don’t competitors have similar people? Can’t competitors hire our people away? Or is it that there something special about the organization that brings out the best in people? These kinds of questions form the basis of VRIO and get to the heart of why some resources help firms more than others.Figure 5.16 VRIO and Relative Firm PerformanceMoreover, your ability to identify whether an organization has VRIO resources will also likely explain their competitive position. In the figure, you can see that a firm’s performance relative to industry peers is likely to vary according to the level to which resources, capabilities, and ultimately core competences satisfy VRIO criteria. The four criteria are explored next.ValuableA resource or capability is said to be valuable if it allows the firm to exploit opportunities or negate threats in the environment. Union Pacific’s extensive network of rail-line property and equipment in the Gulf Coast of the United States is valuable because it allows the company to provide a cost-effective way to transport chemicals. Because the Gulf Coast is the gateway for the majority of chemical production in the United States, the rail network allows the firm to exploit a market opportunity. Delta’s control of the majority of gates at the Cincinnati / Northern Kentucky International Airport (CVG) gives it a significant advantage in many markets. Travelers worldwide have rated CVG one of the best airports for service and convenience 10 years running. The possession of this resource allows Delta to minimize the threat of competition in this city. Delta controls air travel in this desirable hub city, which means that this asset (resource) has significant value. If a resource does not allow a firm to minimize threats or exploit opportunities, it does not enhance the competitive position of the firm. In fact, some scholars suggest that owning resources that do not meet the VRIO test of value actually puts the firm at a competitive disadvantage.Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.RareA resource is rare simply if it is not widely possessed by other competitors. Of the criteria this is probably the easiest to judge. For example, Coke’s brand name is valuable but most of Coke’s competitors (Pepsi, 7Up, RC) also have widely recognized brand names, making it not that rare. Of course, Coke’s brand may be the most recognized, but that makes it more valuable, not more rare, in this case.A firm that possesses valuable resources that are not rare is not in a position of advantage relative to competitors. Rather, valuable resources that are commonly held by many competitors simply allow firms to be at par with competitors. However, when a firm maintains possession of valuable resources that are rare in the industry they are in a position of competitive advantage over firms that do not possess the resource. They may be able to exploit opportunities or negate threats in ways that those lacking the resource will not be able to do. Delta’s virtual control of air traffic through Cincinnati gives it a valuable and rare resource in that market.How rare do the resources need to be for a firm to have a competitive advantage? In practice, this is a difficult question to answer unequivocally. At the two extremes (i.e., one firm possesses the resource or all firms possess it), the concept is intuitive. If only one firm possesses the resource, it has significant advantage over all other competitors. For instance, Monsanto had such an advantage for many years because they owned the patent to aspartame, the chemical compound in NutraSweet, they had a valuable and extremely rare resource. Because during the lifetime of the patent they were the only firm that could sell aspartame, they had an advantage in the artificial sweetener market. However, meeting the condition of rarity does not always require exclusive ownership. When only a few firms possess the resource, they will have an advantage over the remaining competitors. For instance, Toyota and Honda both have the capabilities to build cars of high quality at relatively low cost.Dyer, J. H., Kale, P., & Singh, H. (2004, July–August). When to ally and when to acquire. Harvard Business Review, 109–115. Their products regularly beat rival firms’ products in both short-term and long-term quality ratings.Dyer, J. H., & Hatch, N. (2004). Using Supplier Networks to Learn Faster. Sloan Management Review, 45(3), 57–63. Thus, the criterion of rarity requires that the resource not be widely possessed in the industry. It also suggests that the more exclusive a firm’s access to a particularly valuable resource, the greater the benefit for having it.InimitableAn inimitable (the opposite of imitable) resource is difficult to imitate or to create ready substitutes for. A resource is inimitable and nonsubstitutable if it is difficult for another firm to acquire it or to substitute something else in its place. A valuable and rare resource or capability will grant a competitive advantage as long as other firms do not gain subsequently possession of the resource or a close substitute. If a resource is valuable and rare and responsible for a market leader’s competitive advantage, it is likely that competitors lacking the resource or capability will do all that they can to obtain the resource or capability themselves. This leads us to the third criterion—inimitability. The concept of imitation includes any form of acquiring the lacking resource or substituting a similar resource that provides equivalent benefits. The criterion important to be addressed is whether competitors face a cost disadvantage in acquiring or substituting the resource that is lacking. There are numerous ways that firms may acquire resources or capabilities that they lack.As strategy researcher Scott Gallagher notes:“This is probably the toughest criterion to examine because given enough time and money almost any resource can be imitated. Even patents only last 17 years and can be invented around in even less time. Therefore, one way to think about this is to compare how long you think it will take for competitors to imitate or substitute something else for that resource and compare it to the useful life of the product. Another way to help determine if a resource is inimitable is why/how it came about. Inimitable resources are often a result of historical, ambiguous, or socially complex causes. For example, the U.S. Army paid for Coke to build bottling plants around the world during World War II. This is an example of history creating an inimitable asset. Generally, intangible (also called tacit) resources or capabilities, like corporate culture or reputation, are very hard to imitate and therefore inimitable.”Retrieved January 30, 2009, from http://falcon.jmu.edu/~gallagsr/WDFPD-Internal.pdf.OrganizedThe fourth and final VRIO criterion that determines whether a resource or capability is the source of competitive advantage recognizes that mere possession or control is necessary but not sufficient to gain an advantage. The firm must likewise have the organizational capability to exploit the resources. The question of organization is broad and encompasses many facets of a firm but essentially means that the firm is able to capture any value that the resource or capability might generate. Organization, essentially the same form as that taken in the P-O-L-C framework, spans such firm characteristics as control systems, reporting relationships, compensation policies, and management interface with both customers and value-adding functions in the firm. Although listed as the last criterion in the VRIO tool, the question of organization is a necessary condition to be satisfied if a firm is to reap the benefits of any of the three preceding conditions. Thus, a valuable but widely held resource only leads to competitive parity for a firm if they also possess the capabilities to exploit the resource. Likewise, a firm that possesses a valuable and rare resource will not gain a competitive advantage unless it can actually put that resource to effective use.Many firms have valuable and rare resources that they fail to exploit (the question of imitation is not relevant until the firm exploits valuable and rare resources). For instance, for many years Novell had a significant competitive advantage in computer networking based on its core NetWare product. In high-technology industries, remaining at the top requires continuous innovation. Novell’s decline during the mid- to late 1990s led many to speculate that Novell was unable to innovate in the face of changing markets and technology. However, shortly after new CEO Eric Schmidt arrived from Sun Microsystems to attempt to turnaround the firm, he arrived at a different conclusion. Schmidt commented: “I walk down Novell hallways and marvel at the incredible potential of innovation here. But, Novell has had a difficult time in the past turning innovation into products in the marketplace.”Personal communication with Margaret Haddox. (2003). Novell Corporate Librarian. He later commented to a few key executives that it appeared the company was suffering from “organizational constipation.”Personal communication with former executives. Novell appeared to still have innovative resources and capabilities, but they lacked the organizational capability (e.g., product development and marketing) to get those new products to market in a timely manner.Likewise, Xerox proved unable to exploit its innovative resources. Xerox created a successful research team housed in a dedicated facility in Palo Alto, California, known as Xerox PARC. Scientists in this group invented an impressive list of innovative products, including laser printers, Ethernet, graphical interface software, computers, and the computer mouse. History has demonstrated that these technologies were commercially successful. Unfortunately, for Xerox shareholders, these commercially successful innovations were exploited by other firms. Xerox’s organization was not structured in a way that information about these innovations flowed to the right people in a timely fashion. Bureaucracy was also suffocating ideas once they were disseminated. Compensation policies did not reward managers for adopting these new innovations but rather rewarded current profits over long-term success. Thus, Xerox was never able exploit the innovative resources and capabilities embodied in their off-site Xerox PARC research center.Kearns, D. T., & Nadler, D. A. (1992). Prophets in the dark. New York: HarperColllins; Barney, J. B. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9, 49–61.SWOT and VRIOAs you already know, many scholars refer to core competencies. A core competency is simply a resource, capability, or bundle of resources and capabilities that is VRIO. While VRIO resources are the best, they are quite rare, and it is not uncommon for successful firms to simply be combinations of a large number of VR _ O or even V _ _ O resources and capabilities. Recall that even a V _ _ O resource can be considered a strength under a traditional SWOT analysis.KEY TAKEAWAYInternal analysis begins with the identification of resources and capabilities. Resources can be tangible and intangible; capabilities may have such characteristics as well. VRIO analysis is a way to distinguish resources and capabilities from core competencies. Specifically, VRIO analysis should show you the importance of value, rarity, inimitability, and organization as building blocks of competitive advantage.EXERCISESWhat is the objective of internal analysis?What is the difference between a resource and a capability?What is the difference between a tangible and an intangible resource or capability?What is a core competency?What framework helps you identify those resources, capabilities, or core competencies that provide competitive advantage?Why might competitive advantage for a firm be fleeting?5.6 Developing Strategy Through External AnalysisLEARNING OBJECTIVESUnderstand the basics of general environment analysis.See the components of microenvironment analysis that support industry analysis.Learn the features of Porter’s Five Forces industry analysis.In this section, you will learn about some of the basic external inputs for strategy formulation—the determinants of a firm’s opportunities and threats. We will focus on three aspects of external analysis here, though you recognize that these should be complemented by internal analysis as well. For the external environment, it is best to start with the general environment, and then work your way into the focal industry or industry segment.The General EnvironmentWhen appraising the external environment of the organization you will typically start with its general environment. But what does this mean? The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.Fahey, L. (1999). Competitors. New York: Wiley; Walters, B. A., & Priem, R. L. (1999). Business strategy and CEO intelligence acquisition. Competitive Intelligence Review, 10(2), 15–22. We group these dimensions into six segments: political, economic, social, technical or technological, environmental, and legal. You can use the simple acronym, PESTEL, to help remind you of these six general environment segments. Examples of elements analyzed in each of these segments are shown next.Table 5.1 PESTEL AnalysisPoliticalEconomicHow stable is the political environment?What are current and forecast interest rates?What are local taxation policies, and how do these affect your business?What is the level of inflation, what is it forecast to be, and how does this affect the growth of your market?Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?What are local employment levels per capita and how are they changing?What are the foreign trade regulations?What are the long-term prospects for the economy gross domestic product (GDP) per capita, and so on?What are the social welfare policies?What are exchange rates between critical markets and how will they affect production and distribution of your goods?Social or Socio-culturalTechnical or TechnologicalWhat are local lifestyle trends?What is the level of research funding in government and the industry, and are those levels changing?What are the current demographics, and how are they changing?What is the government and industry’s level of interest and focus on technology?What is the level and distribution of education and income?How mature is the technology?What are the dominant local religions and what influence do they have on consumer attitudes and opinions?What is the status of intellectual property issues in the local environment?What is the level of consumerism and popular attitudes toward it?Are potentially disruptive technologies in adjacent industries creeping in at the edges of the focal industry?What pending legislation is there that affects corporate social policies (e.g., domestic partner benefits, maternity/paternity leave)?How fast is technology changing?What are the attitudes toward work and leisure?What role does technology play in competitive advantage?EnvironmentalLegalWhat are local environmental issues?What are the regulations regarding monopolies and private property?Are there any ecological or environmental issues relevant to your industry that are pending?Does intellectual property have legal protections?How do the activities of international pressure groups affect your business (e.g., Greenpeace, Earth First, PETA)?Are there relevant consumer laws?Are there environmental protection laws? What are the regulations regarding waste disposal and energy consumption?What is the status of employment, heath and safety, and product safety laws?Firms cannot directly control the general environment’s segments and elements. Accordingly, successful companies gather the information required to understand each segment and its implications for the selection and implementation of the appropriate strategies. For example, the terrorist attacks in the United States on September 11, 2001, surprised businesses throughout the world. This single set of events had substantial effects on the U.S. economy. Although individual firms were affected differently, none could control the U.S. economy. Instead, companies around the globe were challenged to understand the effects of this economy’s decline on their current and future strategies. A similar set of events and relationships was seen around the world as financial markets began to struggle one after the other starting in late 2008.Although the degree of impact varies, these environmental segments affect each industry and its firms. The challenge to the firm is to evaluate those elements in each segment that are of the greatest importance. Resulting from these efforts should be a recognition of environmental changes, trends, opportunities, and threats.Analyzing the Organization’s MicroenvironmentWhen we say microenvironment we are referring primarily to an organization’s industry, and the upstream and downstream markets related to it. An industry is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another. Typically, industries include a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns. In part, these strategies are chosen because of the influence of an industry’s characteristics.Spanos, Y. E., & Lioukas, S. (2001). An examination into the causal logic of rent generation: Contrasting Porter’s competitive strategy framework and the resource-based perspective. Strategic Management Journal, 22, 907–934. Upstream markets are the industries that provide the raw material or inputs for the focal industry, while downstream markets are the industries (sometimes consumer segments) that consume the industry outputs. For example, the oil production market is upstream of the oil-refining market (and, conversely, the oil refiners are downstream of the oil producers), which in turn is upstream of the gasoline sales market. Instead of upstream and downstream, the terms wholesale and retail are often used. Accordingly, the industry microenvironment consists of stakeholder groups that a firm has regular dealings with. The way these relationships develop can affect the costs, quality, and overall success of a business.Porter’s Five-Forces Analysis of Market StructureFigure 5.18 Porter’s Five ForcesAdapted from Porter, M. (1980). Competitive strategy. New York: Free Press.You can distill down the results of PESTEL and microenvironment analysis to view the competitive structure of an industry using Michael Porter’s five forces. Here you will find that your understanding of the microenvironment is particularly helpful. Porter’s model attempts to analyze the attractiveness of an industry by considering five forces within a market. According to Porter, the likelihood of firms making profits in a given industry depends on five factors: (1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry.Porter, M. E. (1980). Competitive strategy. New York: Free Press.Compared with the general environment, the industry environment has a more direct effect on the firm’s strategic competitiveness and above-average returns, as exemplified in the strategic focus. The intensity of industry competition and an industry’s profit potential (as measured by the long-run return on invested capital) are a function of five forces of competition: the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors.Porter’s five-forces model of competition expands the arena for competitive analysis. Historically, when studying the competitive environment, firms concentrated on companies with which they competed directly. However, firms must search more broadly to identify current and potential competitors by identifying potential customers as well as the firms serving them. Competing for the same customers and thus being influenced by how customers value location and firm capabilities in their decisions is referred to as the market microstructure.Zaheer, S., & Zaheer, A. (2001). Market microstructure in a global b2b network, Strategic Management Journal, 22, 859–873. Understanding this area is particularly important because, in recent years, industry boundaries have become blurred. For example, in the electrical utilities industry, cogenerators (firms that also produce power) are competing with regional utility companies. Moreover, telecommunications companies now compete with broadcasters, software manufacturers provide personal financial services, airlines sell mutual funds, and automakers sell insurance and provide financing.Hitt, M. A., Ricart I Costa, J., & Nixon, R. D. (1999). New managerial mindsets. New York: Wiley. In addition to focusing on customers rather than specific industry boundaries to define markets, geographic boundaries are also relevant. Research suggests that different geographic markets for the same product can have considerably different competitive conditions.Pan, Y., & Chi, P. S. K. (1999). Financial performance and survival of multinational corporations in China. Strategic Management Journal, 20, 359–374; Brooks, G. R. (1995). Defining market boundaries Strategic Management Journal, 16, 535–549.The five-forces model recognizes that suppliers can become a firm’s competitors (by integrating forward), as can buyers (by integrating backward). Several firms have integrated forward in the pharmaceutical industry by acquiring distributors or wholesalers. In addition, firms choosing to enter a new market and those producing products that are adequate substitutes for existing products can become competitors of a company.Another way to think about industry market structure is that these five sets of stakeholders are competing for profits in the given industry. For instance, if a supplier to an industry is powerful, they can charge higher prices. If the industry member can’t pass those higher costs onto their buyers in the form of higher prices, then the industry member makes less profit. For example, if you have a jewelry store, but are dependent on a monopolist like De Beers for diamonds, then De Beers actually is extracting more relative value from your industry (i.e., the retail jewelry business).New EntrantsThe likelihood of new entry is a function of the extent to which barriers to entry exist. Evidence suggests that companies often find it difficult to identify new competitors.Geroski, P. A. (1999). Early warning of new rivals. Sloan Management Review, 40(3), 107–116. Identifying new entrants is important because they can threaten the market share of existing competitors. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower returns for competing firms. Often, new entrants have a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions (for example, using an Internet-based distribution channel).The more difficult it is for other firms to enter a market, the more likely it is that existing firms can make relatively high profits. The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the retaliation expected from current industry participants. Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter. As such, high-entry barriers increase the returns for existing firms in the industry.Robinson, K. C., & McDougall, P. P. (2001). Entry barriers and new venture performance: A comparison of universal and contingency approaches. Strategic Management Journal, 22, 659–685.Buyer PowerThe stronger the power of buyers in an industry, the more likely it is that they will be able to force down prices and reduce the profits of firms that provide the product. Firms seek to maximize the return on their invested capital. Alternatively, buyers (customers of an industry or firm) want to buy products at the lowest possible price—the point at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers bargain for higher-quality, greater levels of service, and lower prices. These outcomes are achieved by encouraging competitive battles among the industry’s firms.Supplier PowerThe stronger the power of suppliers in an industry, the more difficult it is for firms within that sector to make a profit because suppliers can determine the terms and conditions on which business is conducted. Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its pricing structure, its profitability is reduced by its suppliers’ actions.SubstitutesThis measures the ease with which buyers can switch to another product that does the same thing, such as using aluminum cans rather than glass or plastic bottles to package a beverage. The ease of switching depends on what costs would be involved (e.g., while it may be easy to sell Coke or Pepsi in bottles or cans, transferring all your data to a new database system and retraining staff could be expensive) and how similar customers perceive the alternatives to be. Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces. For example, as a sugar substitute, NutraSweet places an upper limit on sugar manufacturers’ prices—NutraSweet and sugar perform the same function but with different characteristics.Other product substitutes include fax machines instead of overnight deliveries, plastic containers rather than glass jars, and tea substituted for coffee. Recently, firms have introduced to the market several low-alcohol fruit-flavored drinks that many customers substitute for beer. For example, Smirnoff’s Ice was introduced with substantial advertising of the type often used for beer. Other firms have introduced lemonade with 5% alcohol (e.g., Doc Otis Hard Lemon) and tea and lemon combinations with alcohol (e.g., BoDean’s Twisted Tea). These products are increasing in popularity, especially among younger people, and, as product substitutes, have the potential to reduce overall sales of beer.Khermouch, G. (2001, March 5). Grown-up drinks for tender taste buds. Business Week, p. 96.In general, product substitutes present a strong threat to a firm when customers face few, if any, switching costs and when the substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product. Differentiating a product along dimensions that customers value (such as price, quality, service after the sale, and location) reduces a substitute’s attractiveness.RivalryThis measures the degree of competition between existing firms. The higher the degree of rivalry, the more difficult it is for existing firms to generate high profits. The most prominent factors that experience shows to affect the intensity of firms’ rivalries are (1) numerous competitors, (2) slow industry growth, (3) high fixed costs, (4) lack of differentiation, (5) high strategic stakes and (6) high exit barriers.Numerous or Equally Balanced CompetitorsIntense rivalries are common in industries with many companies. With multiple competitors, it is common for a few firms to believe that they can act without eliciting a response. However, evidence suggests that other firms generally are aware of competitors’ actions, often choosing to respond to them. At the other extreme, industries with only a few firms of equivalent size and power also tend to have strong rivalries. The large and often similar-sized resource bases of these firms permit vigorous actions and responses. The Fuji/Kodak and Airbus/Boeing competitive battles exemplify intense rivalries between pairs of relatively equivalent competitors.Slow Industry GrowthWhen a market is growing, firms try to use resources effectively to serve an expanding customer base. Growing markets reduce the pressure to take customers from competitors. However, rivalry in nongrowth or slow-growth markets becomes more intense as firms battle to increase their market shares by attracting their competitors’ customers.Typically, battles to protect market shares are fierce. Certainly, this has been the case with Fuji and Kodak. The instability in the market that results from these competitive engagements reduce profitability for firms throughout the industry, as is demonstrated by the commercial aircraft industry. The market for large aircraft is expected to decline or grow only slightly over the next few years. To expand market share, Boeing and Airbus will compete aggressively in terms of the introduction of new products and product and service differentiation. Both firms are likely to win some and lose other battles. Currently, however, Boeing is the leader.High Fixed Costs or High Storage CostsWhen fixed costs account for a large part of total costs, companies try to maximize the use of their productive capacity. Doing so allows the firm to spread costs across a larger volume of output. However, when many firms attempt to maximize their productive capacity, excess capacity is created on an industry-wide basis. To then reduce inventories, individual companies typically cut the price of their product and offer rebates and other special discounts to customers. These practices, however, often intensify competition. The pattern of excess capacity at the industry level followed by intense rivalry at the firm level is observed frequently in industries with high storage costs. Perishable products, for example, lose their value rapidly with the passage of time. As their inventories grow, producers of perishable goods often use pricing strategies to sell products quickly.Lack of Differentiation or Low Switching CostsWhen buyers find a differentiated product that satisfies their needs, they frequently purchase the product loyally over time. Industries with many companies that have successfully differentiated their products have less rivalry, resulting in lower competition for individual firms.Deephouse, D. L. (1999). To be different, or to be the same? It’s a question (and theory) of strategic balance. Strategic Management Journal, 20, 147–166. However, when buyers view products as commodities (as products with few differentiated features or capabilities), rivalry intensifies. In these instances, buyers’ purchasing decisions are based primarily on price and, to a lesser degree, service. Film for cameras is an example of a commodity. Thus, the competition between Fuji and Kodak is expected to be strong.The effect of switching costs is identical to that described for differentiated products. The lower the buyers’ switching costs, the easier it is for competitors to attract buyers through pricing and service offerings. High switching costs, however, at least partially insulate the firm from rivals’ efforts to attract customers. Interestingly, the switching costs—such as pilot and mechanic training—are high in aircraft purchases, yet, the rivalry between Boeing and Airbus remains intense because the stakes for both are extremely high.High Strategic StakesCompetitive rivalry is likely to be high when it is important for several of the competitors to perform well in the market. For example, although it is diversified and is a market leader in other businesses, Samsung has targeted market leadership in the consumer electronics market. This market is quite important to Sony and other major competitors such as Hitachi, Matsushita, NEC, and Mitsubishi. Thus, we can expect substantial rivalry in this market over the next few years.High strategic stakes can also exist in terms of geographic locations. For example, Japanese automobile manufacturers are committed to a significant presence in the U.S. marketplace. A key reason for this is that the United States is the world’s single largest market for auto manufacturers’ products. Because of the stakes involved in this country for Japanese and U.S. manufacturers, rivalry among firms in the U.S. and global automobile industry is highly intense. While close proximity tends to promote greater rivalry, physically proximate competition has potentially positive benefits as well. For example, when competitors are located near one another, it is easier for suppliers to serve them and they can develop economies of scale that lead to lower production costs. Additionally, communications with key industry stakeholders such as suppliers are facilitated and more efficient when they are close to the firm.Chung, W., & Kalnins, A. (2001). Agglomeration effects and performance: Test of the Texas lodging industry Strategic Management Journal, 22, 969–988.High Exit BarriersSometimes companies continue competing in an industry even though the returns on their invested capital are low or negative. Firms making this choice likely face high exit barriers, which include economic, strategic, and emotional factors, causing companies to remain in an industry when the profitability of doing so is questionable.Attractiveness and ProfitabilityUsing Porter’s analysis firms are likely to generate higher profits if the industry:Is difficult to enter.There is limited rivalry.Buyers are relatively weak.Suppliers are relatively weak.There are few substitutes.Profits are likely to be low if:The industry is easy to enter.There is a high degree of rivalry between firms within the industry.Buyers are strong.Suppliers are strong.It is easy to switch to alternatives.Effective industry analyses are products of careful study and interpretation of data and information from multiple sources. A wealth of industry-specific data is available to be analyzed. Because of globalization, international markets and rivalries must be included in the firm’s analyses. In fact, research shows that in some industries, international variables are more important than domestic ones as determinants of strategic competitiveness. Furthermore, because of the development of global markets, a country’s borders no longer restrict industry structures. In fact, movement into international markets enhances the chances of success for new ventures as well as more established firms.Kuemmerle, W. (2001). Home base and knowledge management in international ventures. Journal of Business Venturing, 17, 99–122; Lorenzoni, G., & Lipparini, A. (1999). The leveraging of interfirm relationships as a distinctive organizational capability: A longitudinal study. Strategic Management Journal, 20, 317–338.Following study of the five forces of competition, the firm can develop the insights required to determine an industry’s attractiveness in terms of its potential to earn adequate or superior returns on its invested capital. In general, the stronger competitive forces are, the lower the profit potential for an industry’s firms. An unattractive industry has low entry barriers, suppliers and buyers with strong bargaining positions, strong competitive threats from product substitutes, and intense rivalry among competitors. These industry characteristics make it very difficult for firms to achieve strategic competitiveness and earn above-average returns. Alternatively, an attractive industry has high entry barriers, suppliers and buyers with little bargaining power, few competitive threats from product substitutes, and relatively moderate rivalry.Porter, M. E. (1980). Competitive strategy. New York: Free Press.KEY TAKEAWAYExternal environment analysis is a key input into strategy formulation. PESTEL is an external environment analysis framework that helps guide your prospecting in the political, economic, social, technological, environmental, and legal spheres of an organization’s external environment. Working inward to the focal organization, we discussed the broad dimensions of the stakeholders feeding into the firm. Porter’s five forces analysis considers (1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry as key external environmental forces in developing strategy.EXERCISESWhat are the six dimensions of the environment that are of broad concern when you conduct a PESTEL analysis?Which of the PESTEL dimensions do you believe to be most important, and why?What are the key dimensions of a firm’s microenvironment?What are the five forces referred to in the Porter framework?Is there a dimension of industry structure that Porter’s model appears to omit?5.7 Formulating Organizational and Personal Strategy With the Strategy DiamondLEARNING OBJECTIVESLearn about the strategy diamond.See how you can add staging, pacing, and vehicles to the strategy.Use the diamond to formulate your personal strategy.This section introduces you to the strategy diamond, a tool that will help you understand how clearly and completely you have crafted a strategy. The diamond relates to both business and corporate strategy, and regardless of whether you are a proponent of design or emergent schools of strategizing, it provides you with a good checklist of what your strategy should cover. The section concludes by walking you through the application of the strategy diamond to the task of developing your personal strategy.The Strategy DiamondAll organizations have strategies. The real question for a business is not whether it has a strategy but rather whether its strategy is effective or ineffective, and whether the elements of the strategy are chosen by managers, luck, or by default. You have probably heard the saying, “luck is a matter of being in the right place at the right time”—well, the key to making sure you are in the right place at the right time is preparation, and in many ways, strategizing provides that type of preparation. Luck is not a bad thing. The challenge is to recognize luck when you see it, capitalize on luck, and put the organization repeatedly in luck’s path.The strategy diamond was developed by strategy researchers Don Hambrick and Jim Fredrickson as a framework for checking and communicating a strategy.Hambrick, D. C., & Fredrickson, J. W. (2001). Are you sure you have a strategy? Academy of Management Executive, 19(4), 51–62. You have already learned in this chapter about the need for focus and choice with strategy, but you might also have noticed that generic strategies and value disciplines do not spell out a strategy’s ingredients. In critiquing the field of strategy, these researchers noted that “after more than 30 years of hard thinking about strategy, consultants and scholars have provided executives with an abundance of frameworks for analyzing strategic situations.…Missing, however, has been any guidance as to what the product of these tools should be—or what actually constitutes a strategy.”Hambrick, D. C., & Fredrickson, J. W. (2001). Are you sure you have a strategy? Academy of Management Executive, 19(4), 51–62, esp. p. 53.Figure 5.20 The Strategy DiamondAdapted from Hambrick, D. C., & Fredrickson, J. W. (2001). Are you sure you have a strategy? Academy of Management Executive, 19 (4), 51–62.Because of their critique and analysis, they concluded that if an organization must have a strategy, then the strategy must necessarily have parts. The figure summarizes the parts of their diamond model, its facets, and some examples of the different ways that you can think about each facet. The diamond model does not presuppose that any particular theory should dictate the contents of each facet. Instead, a strategy consists of an integrated set of choices, but it isn’t a catchall for every important choice a manager faces. In this section, we will tell you a bit about each facet, addressing first the traditional strategy facets of arenas, differentiators, and economic logic; then we will discuss vehicles and finally the staging and pacing facet.Arenas, Differentiators, and Economic LogicWe refer to the first three facets of the strategy diamond—arenas, differentiators, and economic logic—as traditional in the sense that they address three longstanding hallmarks of strategizing. Specifically, strategy matches up market needs and opportunities (located in arenas) with unique features of the firm (shown by its differentiators) to yield positive performance (economic logic). While performance is typically viewed in financial terms, it can have social or environmental components as well.Let’s start with arenas. Answers to strategy questions about arenas tell managers and employees where the firm will be active. For instance, Nike is headquartered in Washington County, on the outskirts of Beaverton, Oregon. Today, Nike’s geographic market arenas are most major markets around the globe, but in the early 1960s, Nike’s arenas were limited to Pacific Northwest track meets accessible by founder Phil Knight’s car. In terms of product markets (another part of where), the young Nike company (previously Blue Ribbon Sports) sold only track shoes and not even shoes it manufactured.Beyond geographic-market and product-market arenas, an organization can also make choices about the value-chain arenas in its strategy. To emphasize the choice part of this value-chain arena, Nike’s competitor New Balance manufactures nearly all the athletic shoes that it sells in the United States. Thus, these two sports-shoe companies compete in similar geographic- and product-market arenas but differ greatly in terms of their choice of value-chain arenas.What about differentiators? Differentiators are the things that are supposedly unique to the firm such that they give it a competitive advantage in its current and future arenas. A differentiator could be asset based, that is, it could be something related to an organization’s tangible or intangible assets. A tangible asset has a value and physically exists. Land, machines, equipment, automobiles, and even currencies, are examples of tangible assets. For instance, the oceanfront land on California’s Monterey Peninsula, where the Pebble Beach Golf Course and Resort is located, is a differentiator for it in the premium golf-course market. An intangible asset is a nonphysical resource that provides gainful advantages in the marketplace. Brands, copyrights, software, logos, patents, goodwill, and other intangible factors afford name recognition for products and services. Obviously, the Nike brand has become a valuable intangible asset because of the broad awareness and reputation for quality and high performance that it has built. Differentiators can also be found in capabilities, that is, how the organization does something. Wal-Mart, for instance, is very good at keeping its costs low. Nike, in contrast, focuses on developing leading-edge, high-performance athletic performance technologies, as well as up-to-the-minute fashion in active sportswear.The third facet of the strategy diamond in this traditional view is economic logic, which explains how the firm makes money. Economic logic tells us how profits will be generated above the firm’s cost of capital. The collapse in the late 1990s of stock market valuations for Internet companies lacking in profits—or any prospect of profits—marked a return to economic reality. Profits above the firm’s cost of capital are required to yield sustained or longer-term shareholder returns. While the economic logic can include environmental and social profits (benefits reaped by society), the strategy must earn enough financial profits to keep investors (owners, tax payers, governments, and so on) willing to continue to fund the organization’s costs of doing business. A firm performs well (i.e., has a strong, positive economic logic) when its differentiators are well aligned with its chosen arenas.VehiclesYou can see why the first three facets of the strategy diamond—arenas, differentiators, and economic logic—might be considered the traditional facets of strategizing in that they cover the basics: (1) external environment, (2) internal organizational characteristics, and (3) some fit between them that has positive performance consequences. The fourth facet of the strategy diamond is called vehicles. If arenas and differentiators show where you want to go, then vehicles communicate how the strategy will get you there.Specifically, vehicles refer to how you might pursue a new arena through internal means, through help from a new partner or some other outside source, or even through acquisition. In the context of vehicles, this is where you determine whether your organization is going to grow organically, acquisitively, or through a combination of both. Organic growth is the growth rate of a company excluding any growth from takeovers, acquisitions, or mergers. Acquisitive growth, in contrast, refers precisely to any growth from takeovers, acquisitions, or mergers. Augmenting either organic or acquisitive growth is growth through partnerships with other organizations. Sometimes such partnership-based growth is referred to as co-opetition, because an organization cooperates with others, even some competitors, in order to compete and grow.Vehicles are considered part of the strategy because there are different skills and competencies associated with different vehicles. For instance, acquisitions fuel rapid growth, but they are challenging to negotiate and put into place. Similarly, alliances are a great way to spread the risk and let each partner focus on what it does best. But at the same time, to grow through alliances also means that you must be really good at managing relationships in which you are dependent on another organization over which you do not have direct control. Organic growth, particularly for firms that have grown primarily through partnering or acquisition, has its own distinct challenges, such as the fact that the organization is on its own to put together everything it needs to fuel its growth.Staging and PacingStaging and pacing constitute the the fifth and final facet of the strategy diamond. Staging and pacing reflect the sequence and speed of strategic moves. This powerful facet of strategizing helps you think about timing and next steps, instead of creating a strategy that is a static, monolithic plan. As an example, the managers of Chuy’s, a chain of Austin, Texas-based Tex-Mex restaurants, wanted to grow the business outside of Austin, but at the same time, they knew it would be hard to manage these restaurants that were farther away. How should they identify in which cities to experiment with new outlets? Their creative solution was to choose cities that were connected to Austin by Southwest Airlines. Since Southwest is inexpensive and its point-to-point system means that cities are never much more than an hour apart, the Austin managers could easily and regularly visit their new ventures out of town. Remember, strategizing is about making choices, and sequencing and speed should be key choices along with the other facets of the strategy. The staging and pacing facet also helps to reconcile the designed and emergent portions of your strategy.The Strategy Diamond and Your Personal Growth and Development StrategyThe strategy diamond is a useful professional and personal tool for managers. How might it benefit them personally? Well, in the same way it can benefit you—the following figure maps out how your strategy fits in the planning aspect of P-O-L-C. Remember that, like in P-O-L-C, your personal strategy should be guided by your own mission and vision. Let’s look at how you might apply the strategy diamond to your personal growth and development objectives.Figure 5.21 Planning and Your Personal Growth and Development StrategyPersonal Arenas and DifferentiatorsYour arenas and differentiators will answer such personal growth and development questions as:What type of work do I want to do?What leisure activities do I like?Where do I want to live?What capabilities (differentiators) do I need to participate in these arenas?What organizations value these capabilities (differentiators)?What capabilities (differentiators) do I want to have and excel in?Your personal arenas can be an activity you want to do, a specific job, or simply a geographic location. For instance, do you want to be a store manager, an accountant, an entrepreneur, or a CEO? Or do you want to live in a certain locale? For instance, I will do anything just as long as I can live in Paris! It can also be a combination of several. For example, perhaps you want to be a software designer for Google and live in San Francisco.The more specific you are about the arenas in your strategy, the better you will be able to plot out the other facets. Going back to our Google example, your personal differentiators would likely have to include the demonstration of excellence in software design and an affinity for the Google corporate culture. More broadly, the differentiators facet of your personal strategy should map on to your arenas facet—that is, they should clearly fit together. Also, recognize too that your differentiators are subject to VRIO, in that where your capabilities are valuable and rare, you may be more likely to economically benefit from them with employers (this foreshadows the link between personal differentiators and personal economic logic).Personal VehiclesThe personal vehicles facet of your strategy answers questions such as:What do I need to accomplish on my own?What do I want to accomplish on my own?What do I need to accomplish with the help of others?Who are they?We often think that our careers and quality of life are up to us—will be based on our choices and actions alone. If that is your belief (i.e., you are a rugged individualist), then your personal growth and development strategy seems to be highly dependent on what you do but not on the contributions of others.It is true that we have to develop our own knowledge and capabilities to move forward. However, in reality, we also typically get most things done through and with others. You have friends and family outside of work and colleagues, employees, and bosses at work.The vehicles component of your personal strategy diamond should spell out how your growth and development is a function of what you do (when we talk about organizations, we refer to this as organic growth), and what you depend on others to do. The better you understand your dependence on others, the better you will likely be able to manage those relationships.Personal Staging and PacingYou can think of personal staging and pacing as the implications of your strategy for your own Outlook calendar. Personal staging and pacing answers questions like:What sequence of events does my strategy require?What are the financial requirements and consequences of each event?What is my deadline for the first event?Is the deadline flexible? Can I manage the pacing of the achievement of each event?How will timing affect achievement of my personal growth and development strategy?Do some events provide an opportunity to reconsider or adjust my strategy?For instance, if you want to be a manager of a retail store it is likely you might need a related college degree and experience. Your personal staging and pacing would answer questions about how you would achieve these, the financial implications of each, as well as their timing.Personal Economic LogicFinally, your personal growth and development strategy will likely have an economic logic. Personal economic logic answers questions such as:How does achievement of my strategy help me pay the bills?What dimensions of my strategy, like arenas or differentiators, is the economic logic of my strategy most dependent on?How sustainable is the economic logic of my strategy?We can see this most clearly when magazines publish lists of high-demand jobs. When employees have skills that are in high demand by employers, the price of those skills in the form of paycheck, is usually bid up in the market. For organizations, economic logic is typically viewed in terms of financial performance. However, increasingly, firms target social and environmental performance as well—similarly, the economic logic of your strategy can have implications for what you do to improve social and environmental conditions. This can happen directly through your volunteer hours or indirectly through your financial support of causes you believe in.KEY TAKEAWAYIn this section, we discussed how to put together a strategy diamond. The first step involves identifying the organization’s arenas, differentiators, and economic logic. This step involves a basic understanding of strategy and summarizes many of the traditional views in strategic management. The second step involves contemplating how the organization would compete or grow in existing or new arenas, and this is where the vehicles came into play. Finally, you considered the sequencing and speed of strategic initiatives by learning about the strategy diamond facet of staging and pacing. Together, these five facets (i.e., arenas, differentiators, economic logic, vehicles, staging, and pacing) constitute the strategy diamond. We concluded the chapter with an application of the strategy diamond to your personal situation.EXERCISESWhat are the five facets of the Hambrick and Fredrickson strategy diamond?What is the relationship between arenas and differentiators if the strategy yields a positive economic logic?If a firm is performing poorly financially, what might this say about the differentiators, arenas, or both?Why is it important to consider vehicles as part of an organization’s strategy?What is the difference between staging and pacing in terms of the strategy diamond?What are some ways that you might apply staging and pacing to an organization’s strategy?

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Published - Fri, 10 Mar 2023

Developing Mission, Vision, and Values - Principles of Management - Chapter 4

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Developing Mission, Vision, and Values - Principles of Management - Chapter 4

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Understand the roles of mission, vision, and values in the planning process.Understand how mission and vision fit into the planning-organizing-leading-controlling (P-O-L-C) framework.See how creativity and passion are related to vision.Incorporate stakeholder interests into mission and vision.Develop statements that articulate organizational mission and vision.Apply mission, vision, and values to your personal goals and professional career.As you are reminded in the figure, the letter “P” in the P-O-L-C framework stands for “planning.” Good plans are meant to achieve something—this something is captured in verbal and written statements of an organization’s mission and vision (its purpose, in addition to specific goals and objectives). With a mission and vision, you can craft a strategy for achieving them, and your benchmarks for judging your progress and success are clear goals and objectives. Mission and vision communicate the organization’s values and purpose, and the best mission and vision statements have an emotional component in that they incite employees to delight customers. The three “planning” topics of your principles of management cover (1) mission and vision, (2) strategy, and (3) goals and objectives. The figure summarizes how these pieces work together.Figure 4.2 Mission and Vision as P-O-L-C ComponentsFigure 4.3 Mission and Vision in the Planning Process4.1 Case in Point: Xerox Motivates Employees for SuccessFigure 4.4Anne Mulcahy, Former Xerox Chairman of the Board (left), and Ursula Burns, Xerox CEO (right)Source: Photo courtesy of Xerox Corporation.As of 2010, Xerox Corporation (NYSE: XRX) is a $22 billion, multinational company founded in 1906 and operating in 160 countries. Xerox is headquartered in Norwalk, Connecticut, and employs 130,000 people. How does a company of such size and magnitude effectively manage and motivate employees from diverse backgrounds and experiences? Such companies depend on the productivity and performance of their employees. The journey over the last 100 years has withstood many successes and failures. In 2000, Xerox was facing bankruptcy after years of mismanagement, piles of debt, and mounting questions about its accounting practices.Anne Mulcahy turned Xerox around. Mulcahy joined Xerox as an employee in 1976 and moved up the corporate ladder, holding several management positions until she became CEO in 2001. In 2005, Mulcahy was named by Fortune magazine as the second most powerful woman in business. Based on a lifetime of experience with Xerox, she knew that the company had powerful employees who were not motivated when she took over. Mulcahy believed that among other key businesses changes, motivating employees at Xerox was a key way to pull the company back from the brink of failure. One of her guiding principles was a belief that in order to achieve customer satisfaction, employees must be treated as key stakeholders and become interested and motivated in their work. Mulcahy not only successfully saw the company through this difficult time but also was able to create a stronger and more focused company.In 2009, Mulcahy became the chairman of Xerox’s board of directors and passed the torch to Ursula Burns, who became the new CEO of Xerox. Burns became not only the first African American woman CEO to head a Standard & Poor’s (S&P) company but also the first woman to succeed another woman as the head of an S&P 100 company. Burns is also a lifetime Xerox employee who has been with the company for over 30 years. She began as a graduate intern and was hired full time after graduation. Because of her tenure with Xerox, she has close relationships with many of the employees, which provides a level of comfort and teamwork. She describes Xerox as a nice family. She maintains that Mulcahy created a strong and successful business but encouraged individuals to speak their mind, to not worry about hurting one another’s feelings, and to be more critical.Burns explains that she learned early on in her career, from her mentors at Xerox, the importance of managing individuals in different ways and not intentionally intimidating people but rather relating to them and their individual perspectives. As CEO, she wants to encourage people to get things done, take risks, and not be afraid of those risks. She motivates her teams by letting them know what her intentions and priorities are. The correlation between a manager’s leadership style and the productivity and motivation of employees is apparent at Xerox, where employees feel a sense of importance and a part of the process necessary to maintain a successful and profitable business. In 2010, Anne Mulcahy retired from her position on the board of directors to pursue new projects.Case written by [citation redacted per publisher request]. Based on information from Tompkins, N. C. (1992, November 1). Employee satisfaction leads to customer service. AllBusiness. Retrieved April 5, 2010, from http://www.allbusiness.com/marketing/market-research/341288-1.html; 50 most powerful women. (2006). Fortune. Retrieved April 5, 2010, from http://money.cnn.com/popups/2006/fortune/mostpowerfulwomen/2.html; Profile: Anne M. Mulcahy. (2010). Forbes. Retrieved April 5, 2010, from http://people.forbes.com/profile/anne-m-mulcahy/19732; Whitney, L. (2010, March 30). Anne Mulcahy to retire as Xerox chairman. CNET News. Retrieved April 5, 2010, from http://news.cnet.com/8301-1001_3-20001412-92.html; Bryant, A. (2010, February 20). Xerox’s new chief tries to redefine its culture. New York Times. Retrieved April 5, 2010, from http://www.nytimes.com/2010/02/21/business/21xerox.html?pagewanted=18dpc.DISCUSSION QUESTIONSIn terms of the P-O-L-C framework, what values do the promotion and retention of Mulcahy and Burns suggest are important at Xerox? How might these values be reflected in its vision and mission statements?How do you think Xerox was able to motivate its employees through the crisis it faced in 2000?How do CEOs with large numbers of employees communicate priorities to a worldwide workforce?How might Ursula Burns motivate employees to take calculated risks?Both Anne Mulcahy and Ursula Burns were lifetime employees of Xerox. How does an organization attract and keep individuals for such a long period of time?4.2 The Roles of Mission, Vision, and ValuesLEARNING OBJECTIVESBe able to define mission and vision.See how values are important for mission and vision.Understand the roles of vision, mission, and values in the P-O-L-C framework.Mission, Vision, and ValuesMission and vision both relate to an organization’s purpose and are typically communicated in some written form. Mission and vision are statements from the organization that answer questions about who we are, what do we value, and where we’re going. A study by the consulting firm Bain and Company reports that 90% of the 500 firms surveyed issue some form of mission and vision statements.Bart, C. K., & Baetz, M. C. (1998). The relationship between mission statements and firm performance: An exploratory study. Journal of Management Studies, 35, 823–853. Moreover, firms with clearly communicated, widely understood, and collectively shared mission and vision have been shown to perform better than those without them, with the caveat that they related to effectiveness only when strategy and goals and objectives were aligned with them as well.Bart, C. K., Bontis, N., & Taggar, S. (2001). A model of the impact of mission statements on firm performance. Management Decision, 39(1), 19–35.A mission statement communicates the organization’s reason for being, and how it aims to serve its key stakeholders. Customers, employees, and investors are the stakeholders most often emphasized, but other stakeholders like government or communities (i.e., in the form of social or environmental impact) can also be discussed. Mission statements are often longer than vision statements. Sometimes mission statements also include a summation of the firm’s values. Values are the beliefs of an individual or group, and in this case the organization, in which they are emotionally invested. The Starbucks mission statement describes six guiding principles that, as you can see, also communicate the organization’s values:Provide a great work environment and treat each other with respect and dignity.Embrace diversity as an essential component in the way we do business.Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.Develop enthusiastically satisfied customers all of the time.Contribute positively to our communities and our environment.Recognize that profitability is essential to our future success.Retrieved October 27, 2008, from http://www.starbucks.com/aboutus.Similarly, Toyota declares its global corporate principles to be:Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world.Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities.Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities.Create and develop advanced technologies and provide outstanding products and services that fulfill the needs of customers worldwide.Foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and respect between labor and management.Pursue growth in harmony with the global community through innovative management.Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships.Retrieved October 27, 2008, from http://www.toyota.co.jp/en/vision/philosophy.A vision statement, in contrast, is a future-oriented declaration of the organization’s purpose and aspirations. In many ways, you can say that the mission statement lays out the organization’s “purpose for being,” and the vision statement then says, “based on that purpose, this is what we want to become.” The strategy should flow directly from the vision, since the strategy is intended to achieve the vision and thus satisfy the organization’s mission. Typically, vision statements are relatively brief, as in the case of Starbuck’s vision statement, which reads: “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.”Retrieved October 27, 2008, from http://www.starbucks.com/aboutus. Or ad firm Ogilvy & Mather, which states their vision as “an agency defined by its devotion to brands.”Retrieved October 27, 2008, from http://www.ogilvy.com/o_mather. Sometimes the vision statement is also captured in a short tag line, such as Toyota’s “moving forward” statement that appears in most communications to customers, suppliers, and employees.Retrieved October 27, 2008, from http://www.toyota.com/about/our_values/index.html. Similarly, Wal-Mart’s tag-line version of its vision statement is “Save money. Live better.”Retrieved October 27, 2008, from http://www.walmart.com.Any casual tour of business or organization Web sites will expose you to the range of forms that mission and vision statements can take. To reiterate, mission statements are longer than vision statements, often because they convey the organizations core values. Mission statements answer the questions of “Who are we?” and “What does our organization value?” Vision statements typically take the form of relatively brief, future-oriented statements—vision statements answer the question “Where is this organization going?” Increasingly, organizations also add a values statement which either reaffirms or states outright the organization’s values that might not be evident in the mission or vision statements.Roles Played by Mission and VisionMission and vision statements play three critical roles: (1) communicate the purpose of the organization to stakeholders, (2) inform strategy development, and (3) develop the measurable goals and objectives by which to gauge the success of the organization’s strategy. These interdependent, cascading roles, and the relationships among them, are summarized in the figure.Figure 4.5 Key Roles of Mission and VisionFirst, mission and vision provide a vehicle for communicating an organization’s purpose and values to all key stakeholders. Stakeholders are those key parties who have some influence over the organization or stake in its future. You will learn more about stakeholders and stakeholder analysis later in this chapter; however, for now, suffice it to say that some key stakeholders are employees, customers, investors, suppliers, and institutions such as governments. Typically, these statements would be widely circulated and discussed often so that their meaning is widely understood, shared, and internalized. The better employees understand an organization’s purpose, through its mission and vision, the better able they will be to understand the strategy and its implementation.Second, mission and vision create a target for strategy development. That is, one criterion of a good strategy is how well it helps the firm achieve its mission and vision. To better understand the relationship among mission, vision, and strategy, it is sometimes helpful to visualize them collectively as a funnel. At the broadest part of the funnel, you find the inputs into the mission statement. Toward the narrower part of the funnel, you find the vision statement, which has distilled down the mission in a way that it can guide the development of the strategy. In the narrowest part of the funnel you find the strategy —it is clear and explicit about what the firm will do, and not do, to achieve the vision. Vision statements also provide a bridge between the mission and the strategy. In that sense the best vision statements create a tension and restlessness with regard to the status quo—that is, they should foster a spirit of continuous innovation and improvement. For instance, in the case of Toyota, its “moving forward” vision urges managers to find newer and more environmentally friendly ways of delighting the purchaser of their cars. London Business School professors Gary Hamel and C. K. Prahalad describe this tense relationship between vision and strategy as stretch and ambition. Indeed, in a study of such able competitors as CNN, British Airways, and Sony, they found that these firms displaced competitors with stronger reputations and deeper pockets through their ambition to stretch their organizations in more innovative ways.Hamel, G., & Prahalad, C. K. (1993, March–April). Strategy as stretch and leverage. Harvard Business Review, 75–84.Third, mission and vision provide a high-level guide, and the strategy provides a specific guide, to the goals and objectives showing success or failure of the strategy and satisfaction of the larger set of objectives stated in the mission. In the cases of both Starbucks and Toyota, you would expect to see profitability goals, in addition to metrics on customer and employee satisfaction, and social and environmental responsibility.KEY TAKEAWAYMission and vision both relate to an organization’s purpose and aspirations, and are typically communicated in some form of brief written statements. A mission statement communicates the organization’s reason for being and how it aspires to serve its key stakeholders. The vision statement is a narrower, future-oriented declaration of the organization’s purpose and aspirations. Together, mission and vision guide strategy development, help communicate the organization’s purpose to stakeholders, and inform the goals and objectives set to determine whether the strategy is on track.EXERCISESWhat is a mission statement?What is a vision statement?How are values important to the content of mission and vision statements?Where does the purpose of mission and vision overlap?How do mission and vision relate to a firm’s strategy?Why are mission and vision important for organizational goals and objectives?4.3 Mission and Vision in the P-O-L-C FrameworkLEARNING OBJECTIVESUnderstand the role of mission and vision in organizing.Understand the role of mission and vision in leading.Understand the role of mission and vision in controlling.Mission and vision play such a prominent role in the planning facet of the P-O-L-C framework. However, you are probably not surprised to learn that their role does not stop there. Beyond the relationship between mission and vision, strategy, and goals and objectives, you should expect to see mission and vision being related to the organizing, leading, and controlling aspects as well. Let’s look at these three areas in turn.Mission, Vision, and OrganizingOrganizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The organizing facet of the P-O-L-C framework typically includes subjects such as organization design, staffing, and organizational culture. With regard to organizing, it is useful to think about alignment between the mission and vision and various organizing activities. For instance, organizational design is a formal, guided process for integrating the people, information, and technology of an organization. It is used to match the form of the organization as closely as possible to the purpose(s) the organization seeks to achieve. Through the design process, organizations act to improve the probability that the collective efforts of members will be successful.Organization design should reflect and support the strategy—in that sense, organizational design is a set of decision guidelines by which members will choose appropriate actions, appropriate in terms of their support for the strategy. As you learned in the previous section, the strategy is derived from the mission and vision statements and from the organization’s basic values. Strategy unifies the intent of the organization and focuses members toward actions designed to accomplish desired outcomes. The strategy encourages actions that support the purpose and discourages those that do not.To organize, you must connect people with each other in meaningful and purposeful ways. Further, you must connect people—human resources—with the information and technology necessary for them to be successful. Organization structure defines the formal relationships among people and specifies both their roles and their responsibilities. Administrative systems govern the organization through guidelines, procedures, and policies. Information and technology define the process(es) through which members achieve outcomes. Each element must support each of the others, and together they must support the organization’s purpose, as reflected in its mission and vision.For example, in 2006, Disney acquired Pixar, a firm is renowned for its creative prowess in animated entertainment. Disney summarizes the Pixar strategy like this: “Pixar’s [strategy] is to combine proprietary technology and world-class creative talent to develop computer-animated feature films with memorable characters and heartwarming stories that appeal to audiences of all ages.”Retrieved October 27, 2008, from http://www.pixar.com/companyinfo/about_us/overview.htm. Disney has helped Pixar achieve this strategy through an important combination of structural design choices. First, Pixar is an independent division of Disney and is empowered to make independent choices in all aspects of idea development. Second, Pixar gives its “creatives”—its artists, writers, and designers—great leeway over decision making. Third, Pixar protects its creatives’ ability to share work in progress, up and down the hierarchy, with the aim of getting it even better. Finally, after each project, teams conduct “postmortems” to catalog what went right and what went wrong. This way, innovations gained through new projects can be shared with later projects, while at the same time sharing knowledge about potential pitfalls.Catmull, E. (2008, September). How Pixar fosters collective creativity. Harvard Business Review, 1–11.Organizational culture is the workplace environment formulated from the interaction of the employees in the workplace. Organizational culture is defined by all of the life experiences, strengths, weaknesses, education, upbringing, and other attributes of the employees. While executive leaders play a large role in defining organizational culture by their actions and leadership, all employees contribute to the organizational culture.As you might imagine, achieving alignment between mission and vision and organizational culture can be very powerful, but culture is also difficult to change. This means that if you are seeking to change your vision or mission, your ability to change the organization’s culture to support those new directions may be difficult, or, at least, slow to achieve.For instance, in 2000, Procter & Gamble (P&G) sought to change a fundamental part of its vision in a way that asked the organization to source more of its innovations from external partners. Historically, P&G had invested heavily in research and development and internal sources of innovation—so much so that “not invented here” (known informally as NIH) was the dominant cultural mind-set.Lafley, A. G., & Charan, R. (2008). The game changer. Upper Saddle River, NJ: Crown Books. NIH describes a sociological, corporate, or institutional culture that avoids using products, research, or knowledge that originated anywhere other than inside the organization. It is normally used in a pejorative sense. As a sociological phenomenon, the “not invented here” syndrome is manifested as an unwillingness to adopt an idea or product because it originates from another culture. P&G has been able to combat this NIH bias and gradually change its culture toward one that is more open to external contributions, and hence in much better alignment with its current mission and vision.Social networks are often referred to as the “invisible organization.” They consist of individuals or organizations connected by one or more specific types of interdependency. You are probably already active in social networks through such Web communities as MySpace, Facebook, and LinkedIn. However, these sites are really only the tip of the iceberg when it comes to the emerging body of knowledge surrounding social networks. Networks deliver three unique advantages: access to “private” information (i.e., information that companies do not want competitors to have), access to diverse skill sets, and power. You may be surprised to learn that many big companies have breakdowns in communications even in divisions where the work on one project should be related to work on another. Going back to our Pixar example, for instance, Disney is fostering a network among members of its Pixar division in a way that they are more likely to share information and learn from others. The open internal network also means that a cartoon designer might have easier access to a computer programmer and together they can figure out a more innovative solution. Finally, since Pixar promotes communication across hierarchical levels and gives creatives decision-making authority, the typical power plays that might impede sharing innovation and individual creativity are prevented. Managers see these three network advantages at work every day but might not pause to consider how their networks regulate them.Mission, Vision, and LeadingLeading involves influencing others toward the attainment of organizational objectives. Leading and leadership are nearly synonymous with the notions of mission and vision. We might describe a very purposeful person as being “on a mission.” As an example, Steve Demos had the personal mission of replacing cow’s milk with soy milk in U.S. supermarkets, and this mission led to his vision for, and strategy behind, the firm White Wave and its Silk line of soy milk products.Carpenter, M. A., & Sanders, W. G. (2006). Strategic management: A dynamic perspective. (1st ed.). Upper Saddle River, NJ: Pearson/Prentice-Hall. Similarly, we typically think of some individuals as leaders because they are visionary. For instance, when Walt Disney suggested building a theme park in a Florida swamp back in the early 1960s, few other people in the world seemed to share his view.Any task—whether launching Silk or building the Disney empire— is that much more difficult if attempted alone. Therefore, the more that a mission or vision challenges the status quo—and recognizing that good vision statements always need to create some dissonance with the status quo—the greater will be the organization’s need of what leadership researcher Shiba calls “real change leaders”—people who will help diffuse the revolutionary philosophy even while the leader (i.e., the founder or CEO) is not present. Without real change leaders, a revolutionary vision would remain a mere idea of the visionary CEO—they are the ones who make the implementation of the transformation real.In most cases where we think of revolutionary companies, we associate the organization’s vision with its leader—for instance, Apple and Steve Jobs, Dell and Michael Dell, or Google with the team of Sergey Brin and Larry Page. Most important, in all three of these organizations, the leaders focused on creating an organization with a noble mission that enabled the employees and management team to achieve not only the strategic breakthrough but to also realize their personal dreams in the process. Speaking to the larger relationship between mission, vision, strategy, and leadership, are the Eight principles of visionary leadership, derived from Shiba’s 2001 book, Four Practical Revolutions in Management (summarized in “Eight Principles of Visionary Leadership”Shiba, S., & Walden, D. (2001). Four practical revolutions in management: Systems for creating unique organizational capability. New York: Productivity Press.).Eight Principles of Visionary LeadershipPrinciple 1: The visionary leader must do on-site observation leading to personal perception of changes in societal values from an outsider’s point of view.Principle 2: Even though there is resistance, never give up; squeeze the resistance between outside-in (i.e., customer or society-led) pressure in combination with top-down inside instruction.Principle 3: Revolution is begun with symbolic disruption of the old or traditional system through top-down efforts to create chaos within the organization.Principle 4: The direction of revolution is illustrated by a symbolically visible image and the visionary leader’s symbolic behavior.Principle 5: Quickly establishing new physical, organizational, and behavioral systems is essential for successful revolution.Principle 6: Real change leaders are necessary to enable revolution.Principle 7: Create an innovative system to provide feedback from results.Principle 8: Create a daily operation system, including a new work structure, new approach to human capabilities and improvement activities.Vision That Pervades the OrganizationA broader definition of visionary leadership suggests that, if many or most of an organization’s employees understand and identify with the mission and vision, efficiency will increase because the organization’s members “on the front lines” will be making decisions fully aligned with the organization’s goals. Efficiency is achieved with limited hands-on supervision because the mission and vision serve as a form of cruise control. To make frontline responsibility effective, leadership must learn to trust workers and give them sufficient opportunities to develop quality decision-making skills.The classic case about Johnsonville Sausage, recounted by CEO Ralph Stayer, documents how that company dramatically improved its fortunes after Stayer shared responsibility for the mission and vision, and ultimately development of the actual strategy, with all of his employees. His vision was the quest for an answer to “What Johnsonville would have to be to sell the most expensive sausage in the industry and still have the biggest market share?”Stayer, R. (1990, November). How I learned to let my workers lead. Harvard Business Review. Of course, he made other important changes as well, such as decentralizing decision making and tying individual’s rewards to company-wide performance, but he initiated them by communicating the organization’s mission and vision and letting his employees know that he believed they could make the choices and decisions needed to realize them.Mission and vision are also relevant to leadership well beyond the impact of one or several top executives. Even beyond existing employees, various stakeholders—customers, suppliers, prospective new employees—are visiting organizations’ Web sites to read their mission and vision statements. In the process, they are trying to understand what kind of organization they are reading about and what the organization’s values and ethics are. Ultimately, they are seeking to determine whether the organization and what it stands for are a good fit for them.Vision, Mission, and ControllingControlling involves ensuring that performance does not deviate from standards. Controlling consists of three steps: (1) establishing performance standards, (2) comparing actual performance against standards, and (3) taking corrective action when necessary. Mission and vision are both directly and indirectly related to all three steps.Performance StandardsRecall that mission and vision tell a story about an organization’s purpose and aspirations. Mission and vision statements are often ambiguous by design because they are intended to inform the strategy not be the strategy. Nevertheless, those statements typically provide a general compass heading for the organization and its employees. For instance, vision may say something about innovativeness, growth, or firm performance, and the firm will likely have set measurable objectives related to these. Performance standards often exceed actual performance but, ideally, managers will outline a set of metrics that can help to predict the future, not just evaluate the past.It is helpful to think about such metrics as leading, lagging, and pacing indicators. A leading indicator actually serves to predict where the firm is going, in terms of performance. For instance, General Electric asks customers whether they will refer it new business, and GE’s managers have found that this measure of customer satisfaction does a pretty good job of predicting future sales. A pacing indicator tells you in real time that the organization is on track, for example, in on-time deliveries or machinery that is in operation (as opposed to being under repair or in maintenance). A lagging indicator is the one we are all most familiar with. Firm financial performance, for instance, is an accounting-based summary of how well the firm has done historically. Even if managers can calculate such performance quickly, the information is still historic and not pacing or leading. Increasingly, firms compile a set of such leading, lagging, and pacing goals and objectives and organize them in the form of a dashboard or Balanced Scorecard.Actual Versus Desired PerformanceThe goals and objectives that flow from your mission and vision provide a basis for assessing actual versus desired performance. In many ways, such goals and objectives provide a natural feedback loop that helps managers see when and how they are succeeding and where they might need to take corrective action. This is one reason goals and objectives should ideally be specific and measurable. Moreover, to the extent that they serve as leading, lagging, and pacing performance metrics, they enable managers to take corrective action on any deviations from goals before too much damage has been done.Corrective ActionFinally, just as mission and vision should lead to specific and measurable goals and objectives and thus provide a basis for comparing actual and desired performance, corrective action should also be prompted in cases where performance deviates negatively from performance objectives. It is important to point out that while mission and vision may signal the need for corrective action, because they are rather general, high-level statements they typically will not spell out what specific actions—that latter part is the role of strategy, and mission and vision are critical for good strategies but not substitutes for them. A mission and vision are statements of self-worth. Their purpose is not only to motivate employees to take meaningful action but also to give leadership a standard for monitoring progress. It also tells external audiences how your organization wishes to be viewed and have its progress and successes gauged.Strategic human resources management (SHRM) reflects the aim of integrating the organization’s human capital—its people—into the mission and vision. Human resources management alignment means to integrate decisions about people with decisions about the results an organization is trying to obtain. Research indicates that organizations that successfully align human resources management with mission and vision accomplishment do so by integrating SHRM into the planning process, emphasizing human resources activities that support mission goals, and building strong human resources/management capabilities and relationships.Gerhart, B. A., & Rynes, S. L. (2003). Compensation: Theory, Evidence, and Strategic Implications. Thousand Oaks, CA, Sage;.KEY TAKEAWAYIn addition to being a key part of the planning process, mission and vision also play key roles in the organizing, leading, and controlling functions of management. While mission and vision start the planning function, they are best realized when accounted for across all four functions of management—P-O-L-C. In planning, mission and vision help to generate specific goals and objectives and to develop the strategy for achieving them. Mission and vision guide choices about organizing, too, from structure to organizational culture. The cultural dimension is one reason mission and vision are most effective when they pervade the leadership of the entire organization, rather than being just the focus of senior management. Finally, mission and vision are tied to the three key steps of controlling: (1) establishing performance standards, (2) comparing actual performance against standards, and (3) taking corrective action when necessary. Since people make the place, ultimately strategic human resources management must bring these pieces together.EXERCISESHow might mission and vision influence organizational design?How might mission and vision influence leadership practices?Why might a specific replacement CEO candidate be a good or poor choice for a firm with an existing mission and vision?Which aspects of controlling do mission and vision influence?Why are mission and vision relevant to the management of internal organizational social networks?What performance standards might reinforce a firm’s mission and vision?What is the role of mission and vision with strategic human resource management?4.4 Creativity and PassionLEARNING OBJECTIVESUnderstand how creativity relates to vision.Develop some creativity tools.Understand how passion relates to vision.Creativity and passion are of particular relevance to mission and vision statements. A simple definition of creativity is the power or ability to invent. We sometimes think of creativity as being a purely artistic attribute, but creativity in business is the essence of innovation and progress. Passion at least in the context we invoke here, refers to an intense, driving, or overmastering feeling or conviction. Passion is also associated with intense emotion compelling action. We will focus mostly on the relationship between creativity, passion, and vision in this section because organizational visions are intended to create uneasiness with the status quo and help inform and motivate key stakeholders to move the organization forward. This means that a vision statement should reflect and communicate something that is relatively novel and unique, and such novelty and uniqueness are the products of creativity and passion.Creativity and passion can, and probably should, also influence the organization’s mission. In many ways, the linkages might be clearest between creativity and vision statements and passion and mission statements because the latter is an expression of the organization’s values and deeply held beliefs. Similarly, while we will discuss creativity and passion separately in this section, your intuition and experience surely tell you that creativity eventually involves emotion, to be creative, you have to care about—be passionate about—what you’re doing.Creativity and VisionMore recently, work by DeGraf and Lawrence, suggest a finer-grained view into the characteristics and types of creativity.DeGraf, J., & Lawrence, K. A. (2002). Creativity at Work: Developing the Right Practices to Make It Happen. San Francisco: Jossey-Bass. They argued that creativity “types” could be clustered based on some combination of flexibility versus control and internal versus external orientation. For the manager, their typology is especially useful as it suggests ways to manage creativity, as in simply hiring creative individuals. As summarized in the figure, their research suggests that there are four types of creativity: (1) investment (external orientation with high control), (2) imagination (external orientation with flexibility emphasis), (3) improvement (internal orientation with high control), and (4) incubation (internal orientation with flexibility emphasis).The first type of creativity, investment, is associated with speed—being first and being fast. It is also a form of creativity fostered from the desire to be highly competitive. Perhaps one of the most recent examples of this type of creativity crucible is the beer wars—the battle for U.S. market share between SABMiller and Anheuser Busch (AB; Budweiser). Miller was relentless in attacking the quality of AB’s products through its advertisements, and at the same time launched a myriad number of new products to take business from AB’s stronghold markets.Retrieved October 27, 2008, from http://www.bizjournals.com/milwaukee/stories/2004/05/31/story7.html.The second type of creativity, imagination, is the form that most of us think of first. This type of creativity is characterized by new ideas and breakthroughs: Apple’s stylish design of Macintosh computers and then game-changing breakthroughs with its iPod and iPhone. Oftentimes, we can tie this type of creativity to the drive or genius of a single individual, such as Apple’s Steve Jobs.Figure 4.8 Four Creativity TypesAdapted from DeGraf, J., & Lawrence, K. A. (2002). Creativity at Work: Developing the Right Practices to Make It Happen. San Francisco: Jossey-Bass.Where big ideas come from the imagination quadrant, improvement is a type of creativity that involves making an existing idea better. Two great examples of this are McDonald’s and Toyota. Ray Kroc, McDonald’s founder, had the idea of creating quality and cooking standards for preparing tasty burgers and fries. While there were many other burger joints around at the time (the 1950s), Kroc’s unique process-oriented approach gave McDonald’s a big advantage. Similarly, Toyota has used the refinement of its automaking and auto-assembly processes (called the Toyota Business System) to be one of the largest and most successful, high-quality car makers in the world.Finally, the fourth area of creativity is incubation. Incubation is a very deliberate approach that concerns a vision of sustainability—that is, leaving a legacy. This type of creativity is more complex because it involves teamwork, empowerment, and collective action. In their chapter on problem solving, David Whetten and Kim Cameron provide Gandhi as an example of incubation creativity:“Mahatma Gandhi was probably the only person in modern history who has single-handedly stopped a war. Lone individuals have started wars, but Gandhi was creative enough to stop one. He did so by mobilizing networks of people to pursue a clear vision and set of values. Gandhi would probably have been completely noncreative and ineffective had he not been adept at capitalizing on incubation dynamics. By mobilizing people to march to the sea to make salt, or to burn passes that demarcated ethnic group status, Gandhi was able to engender creative outcomes that had not been considered possible. He was a master at incubation by connecting, involving, and coordinating people.”Whetten, D., & Camerson, K. (2007). Developing Management skills. (7th ed.). Upper Saddle River, NJ: Pearson/Prentice-Hall, 185.While no one of these four types of creativity is best, they have some contradictory or conflicting characteristics. For example, imagination and improvement emphasize different approaches to creativity. The size of the new idea, for instance, is typically much bigger with imagination (i.e., revolutionary solutions) than with improvement (i.e., incremental solutions). Investment and incubation also are very different—investment is relatively fast, and the other relatively slow (i.e., incubation emphasizes deliberation and development).Creativity ToolsIn this section, we introduce you to two creativity tools: SCAMPER and the Nominal Group Technique. This set of tools is not exhaustive but gives you some good intuition and resources to develop new ideas—either to craft a vision for a new company or revise an existing mission and vision. The first three tools can be used and applied individually or in groups; Nominal Group Technique is designed to bolster creativity in groups and can build on individual and group insights provided by the other tools.All these tools help you to manage two divergent forms of thinking necessary for creativity—programmed thinking and lateral thinking. Programmed thinking often called left-brained thinking, relies on logical or structured ways of creating a new product or service. In terms of mission and vision, this means a logical and deliberate process is used to develop the vision statement. Lateral thinking a term coined by Edward DeBono in his book The Use of Lateral Thinking (1967), is about changing patterns and perceptions; it is about ideas that may not be obtainable by using only traditional step-by-step, programmed, logic.De Bono, E. (1992). Serious Creativity. New York: Harper Business; Osborn, A. (1953). Applied Imagination. New York: Scribner’s . Lateral thinking draws on the right side of our brains.Each type of approach—programmed versus lateral—has its strength. Logical and disciplined programmed thinking is enormously effective in making products and services better. It can, however, only go so far before all practical improvements have been carried out. Lateral thinking can generate completely new concepts and ideas and brilliant improvements to existing systems. In the wrong place, however, it can be impractical or unnecessarily disruptive.SCAMPERDeveloped by Bob Eberle, SCAMPER is a checklist tool that helps you to think of changes you can make to an existing marketplace to create a new one—a new product, a new service, or both.Eberle, R. (1997). Scamper: Creative Games and Activities for Imagination Development. New York: Prufrock Press. You can use these changes either as direct suggestions or as starting points for lateral thinking. This, in turn, can inspire a new vision statement. Table 4.1 "Creativity through SCAMPER" provides you with the SCAMPER question steps and examples of new products or services that you might create.Table 4.1 Creativity through SCAMPERQuestions:Examples:Substitute: What else instead? Who else instead? Other ingredients? Other material? Other time? Other place?Vegetarian hot dogsCombine: How about a blend? Combine purposes? Combine materials?Musical greeting cardsAdapt: What else is like this? What other idea does this suggest? How can I adjust to these circumstances?Snow tiresModify: Different order, form, shape? Minify: What to make smaller? Slower? Lighter? What to do with less frequency? Magnify: What to make higher? Longer? Thicker? What to do with greater frequency?Scented crayons; Bite-sized Snickers bars; Super-sized french friesPut to other uses: New ways to use as is? Other uses I modified? Other places to use an item or movement?Towel as fly swatterEliminate: What to remove? Omit? Understate?Cordless telephoneRearrange: Other layout? Other sequence? Transpose cause and effect? Transpose positive and negative? How about opposites? Reverse: Interchange components? Other pattern? Backward? Upside down?Vertical stapler; Reversible clothingAs shown in the Table 4.1 "Creativity through SCAMPER", by taking a topic or problem and then using SCAMPER, you can generate possible new products. It may be some combination of these SCAMPER changes that lead to highly innovative solutions. For instance, the entertainment company Cirque du Soliel has modeled its shows on the traditional circus. However, it has adapted aspects of theater and opera, eliminated animals, and reduced the number of rings from three to one. As a result, it offers a highly stylized (and much more expensive!) version of what, nostalgically, we call a circus today. Many of the ideas may be impractical. However, some of these ideas could be good starting points for a new organization or revision of the vision for an existing one.Nominal Group TechniqueThe Nominal Group Technique (NGT) is a method of facilitating a group of people to produce a large number of ideas in a relatively short time.This section is reproduced with permission of the University of Wisconsin Extension Program. A circulation version can be found at http://www.uwex.edu/ces/pdande/resources/pdf/Tipsheet3.pdf (retrieved October 28, 2008). Additional information on NGT can be gained by reading the following: Delbecq, A., Van de Ven, A., & Gustafson, D. (1975). Group Techniques for Program Planning: A Guide to Nominal Group and Delphi Processes. Glenview, IL: Scott, Foresman; Tague, N. (1995). The Quality Toolbox. Milwaukee, WI: ASQC Quality Press; Witkin, B., & Altschuld, J. (1995). Planning and Conducting Needs Assessment: A Practical Guide. Thousands Oaks, CA, Sage;. In addition to using NGT to develop a mission and vision statement, it can be useful:To generate numerous creative ideasTo ensure everyone is heardWhen there is concern that some people may not be vocalTo build consensusWhen there is controversy or conflictAs shown in “NGT Preparation and Supplies,” preparation and supplies are modest. It encourages contributions from everyone by allowing for equal participation among group members. A question is posed to the group. Individually and silently, each participant writes down his or her ideas. In round-robin fashion, each member supplies an idea until all ideas are shared. Generally, 6 to 10 people participate. “Nominal” means that the participants form a group in name only. For most of the session, they do not interact as they would in other group processes.NGT Preparation and SuppliesFormulate your discussion question. Ensure that the wording prevents misunderstanding and is objective. Supplies needed include:Flip chart for each tableMasking tape3 × 5 cards for each participantWork tablesFelt pensThe group is divided into small work groups, each with a leader. A flip chart and markers are needed at each table. Position the flip chart so that all can see the ideas. The remaining simple procedures are summarized in “NGT Procedure.”NGT ProcedureIntroduction: Briefly welcome participants, clarify the purpose of the group exercise, and explain the procedure to be followed and how results are to be used.Present question: Orally present the question that is written on the flip chart; clarify as needed.Silent generation of ideas: Each participant silently thinks of and writes down (on 3 × 5 card) as many ideas as possible. Allow 5 to 10 minutes.Record ideas: In turn, each participant reads aloud one idea, and it is recorded on the flip chart for all to see.Continue until all ideas are recorded.Discourage discussion, not even questions for clarification.Encourage “hitchhiking,” that is, expanding on another’s statement. Ideas do not have to be from the participant’s written list.Participants may pass a turn and then add an idea at a subsequent turn.Discourage combining ideas from individuals unless they are exactly the same.Group discussion: After all ideas are recorded, the person who suggested the idea is given the opportunity to explain it further.Duplicates may be combined.Wording may be changed if the originator agrees.Ideas are deleted only by unanimous agreement.Restrict discussion to clarify meaning; the value or merit of ideas is not discussed.Passion and VisionPassion as we invoke the term in this chapter, refers to intense, driving, or overmastering feeling or conviction. Passion is also associated with intense emotion compelling action. Passion is relevant to vision in at least two ways: (1) Passion about an idea as inspiration of the vision and vision statement and (2) shared passion among organizational members about the importance of the vision.Passion as InspirationEntrepreneur Curt Rosengren makes this observation about the relationship between passion and entrepreneurship: “Strangely, in spite of its clear importance, very few entrepreneurs or managers consciously incorporate passion into their decisions, ultimately leaving one of their most valuable assets on their path to success largely to chance, even though there is little question that passion can be a part of vision creation.”Retrieved October 28, 2008, from http://www.astroprojects.com/media/MSPassion8.html. Rosengren comments further that:“Passion is the essence of the entrepreneurial spirit. It is an entrepreneur’s fuel, providing the drive and inspiration to create something out of nothing while enduring all the risks, uncertainty, and bumps in the road that that entails.“Entrepreneurs’ lives consist of a nonstop mission to communicate their vision and inspire others to support their efforts. As evangelists, salespeople, fundraisers, and cheerleaders they need to breathe life into their vision while enlisting others in their dream. From creating a vision for the future to selling the idea to investors, from attracting high-quality employees to inspiring them to do what nobody thought possible, that passion is a key ingredient.“Passion also plays a key role in their belief that they can achieve the so-called impossible, bouncing back from failure and ignoring the chorus of No that is inevitably part of the entrepreneurial experience.“Robin Wolaner, founder of Parenting magazine and author of Naked In The Boardroom: A CEO Bares Her Secrets So You Can Transform Your Career, put it succinctly when she said, ‘To succeed in starting a business you have to suspend disbelief, because the odds are against you. Logic is going to stop you.’ Passion, on the other hand, will help you fly.”Retrieved October 28, 2008, from http://www.astroprojects.com/media/MSPassion8.html.Passion About the VisionPassion doesn’t just have benefits for the individual entrepreneur or manager when formulating a vision statement, it can help the whole business thrive. While there is little academic research on the relationship between passion and vision, studies suggest that fostering engagement, a concept related to passion, in employees has a significant effect on the corporate bottom line. Gallup, for instance, has been on the forefront of measuring the effect of what it calls employee engagement. Employee engagement is a concept that is generally viewed as managing discretionary effort; that is, when employees have choices, they will act in a way that furthers their organization’s interests. An engaged employee is fully involved in, and enthusiastic about, his or her work.http://www.gallup.com/consulting/52/Employee-Engagement.aspx. The consulting firm BlessingWhite offers this description of engagement and its value (and clear relationship with passion):“Engaged employees are not just committed. They are not just passionate or proud. They have a line-of-sight on their own future and on the organization’s mission and goals. They are ‘enthused’ and ‘in gear’ using their talents and discretionary effort to make a difference in their employer’s quest for sustainable business success.” (Employee Engagement Report 2008)BlessingWhite. (2008, April). 2008 employee engagement report. http://www.blessingwhite.com/eee__report.asp.Engaged employees are those who are performing at the top of their abilities and happy about it. According to statistics that Gallup has drawn from 300,000 companies in its database, 75%–80% of employees are either “disengaged” or “actively disengaged.”Retrieved October 28, 2008, from http://gmj.gallup.com/content/24880/Gallup-Study-Engaged-Employees-Inspire-Company.aspx.That’s an enormous waste of potential. Consider Gallup’s estimation of the impact if 100% of an organization’s employees were fully engaged:Customers would be 70% more loyal.Turnover would drop by 70%.Profits would jump by 40%.Job satisfaction studies in the United States routinely show job satisfaction ratings of 50%–60%. But one recent study by Harris Interactive of nearly 8,000 American workers went a step further.Retrieved October 29, 2008, from http://www.agewave.com/media_files/rough.html.http:// What did the researchers find?Only 20% feel very passionate about their jobs.Less than 15% agree that they feel strongly energized by their work.Only 31% (strongly or moderately) believe that their employer inspires the best in them.Consciously creating an environment where passion is both encouraged and actively developed can yield an enormous competitive advantage. That environment starts at the top through the development and active communication of mission and vision.KEY TAKEAWAYYou learned about the relationship between creativity and passion and mission and vision. You learned that creativity relates to the power or ability to create and that passion is intense emotion compelling action. Creativity is important if the desired mission and vision are desired to be novel and entrepreneurial; passion is important both from the standpoint of adding energy to the mission and vision and to key stakeholders following the mission and vision.EXERCISESWhat is creativity?Why is creativity relevant to vision and vision statements?What are some useful creativity tools?What is passion?Why is passion relevant to vision and vision statements?What is the relationship between passion and engagement?4.5 StakeholdersLEARNING OBJECTIVESLearn about stakeholders and their importance.Understand stakeholder analysis.Be able to map stakeholders and their level of participation.Stakeholders and Stakeholder AnalysisStakeholders are individuals or groups who have an interest in an organization’s ability to deliver intended results and maintain the viability of its products and services. We’ve already stressed the importance of stakeholders to a firm’s mission and vision. We’ve also explained that firms are usually accountable to a broad range of stakeholders, including shareholders, who can make it either more difficult or easier to execute a strategy and realize its mission and vision. This is the main reason managers must consider stakeholders’ interests, needs, and preferences.Considering these factors in the development of a firm’s mission and vision is a good place to start, but first, of course, you must identify critical stakeholders, get a handle on their short- and long-term interests, calculate their potential influence on your strategy, and take into consideration how the firms strategy might affect the stakeholders (beneficially or adversely). Table 4.2 "Stakeholder Categories" provides one way to begin thinking about the various stakeholder groups, their interests, importance, and influence. Influence reflects a stakeholder’s relative power over and within an organization; importance indicates the degree to which the organization cannot be considered successful if a stakeholder’s needs, expectations, and issues are not addressed.Table 4.2 Stakeholder CategoriesStakeholderCategoriesInterestsImportanceInfluenceOwnersManagersEmployeesCustomersEnvironmentalSocialGovernmentSuppliersCompetitorsOther?Adapted from http://www.stsc.hill.af.mil/crosstalk/2000/12/smith.html.As you can imagine, for instance, one key stakeholder group comprises the CEO and the members of the top-management team. These are key managers, and they might be owners as well. This group is important for at least three reasons:Its influence as either originator or steward of the organization’s mission and vision.Its responsibility for formulating a strategy that realizes the mission and vision.Its ultimate role in strategy implementation.Typically, stakeholder evaluation of both quantitative and qualitative performance outcomes will determine whether management is effective. Quantitative outcomes include stock price, total sales, and net profits, while qualitative outcomes include customer service and employee satisfaction. As you can imagine, different stakeholders may place more emphasis on some outcomes than other stakeholders, who have other priorities.Stakeholders, Mission, and VisionStakeholder analysis refers to the range of techniques or tools used to identify and understand the needs and expectations of major interests inside and outside the organization environment. Managers perform stakeholder analysis to gain a better understanding of the range and variety of groups and individuals who not only have a vested interest in the organization, and ultimately the formulation and implementation of a firm’s strategy, but who also have some influence on firm performance. Managers thus develop mission and vision statements, not only to clarify the organization’s larger purpose but also to meet or exceed the needs of its key stakeholders.Stakeholder analysis may also enable managers to identify other parties that might derail otherwise well-formulated strategies, such as local, state, national, or foreign governmental bodies. Finally, stakeholder analysis enables organizations to better formulate, implement, and monitor their strategies, and this is why stakeholder analysis is a critical factor in the ultimate implementation of a strategy.Identifying StakeholdersThe first step in stakeholder analysis is identifying major stakeholder groups. As you can imagine, the groups of stakeholders who will, either directly or indirectly, be affected by or have an effect on a firm’s strategy and its execution can run the gamut from employees, to customers, to competitors, to the government. Ultimately, we will want to take these stakeholders and plot them on a chart, similar to that shown in the following figure.Figure 4.10 Stakeholder MappingAdapted from Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman.Let’s pause for a moment to consider the important constituencies we will be charting on our stakeholder map. Before we start, however, we need to remind ourselves that stakeholders can be individuals or groups—communities, social or political organizations, and so forth. In addition, we can break groups down demographically, geographically, by level and branch of government, or according to other relevant criteria. In so doing, we’re more likely to identify important groups that we might otherwise overlook.With these facts in mind, you can see that, externally, a map of stakeholders will include such diverse groups as governmental bodies, community-based organizations, social and political action groups, trade unions and guilds, and even journalists. National and regional governments and international regulatory bodies will probably be key stakeholders for global firms or those whose strategy calls for greater international presence. Internally, key stakeholders include shareholders, business units, employees, and managers.Steps in Identifying StakeholdersIdentifying all of a firm’s stakeholders can be a daunting task. In fact, as we will note again shortly, a list of stakeholders that is too long actually may reduce the effectiveness of this important tool by overwhelming decision makers with too much information. To simplify the process, we suggest that you start by identifying groups that fall into one of four categories: organizational, capital market, product market, and social. Let’s take a closer look at this step.Step 1: Determining Influences on Mission, Vision, and Strategy Formulation. One way to analyze the importance and roles of the individuals who compose a stakeholder group is to identify the people and teams who should be consulted as strategy is developed or who will play some part in its eventual implementation. These are organizational stakeholders, and they include both high-level managers and frontline workers. Capital-market stakeholders are groups that affect the availability or cost of capital—shareholders, venture capitalists, banks, and other financial intermediaries. Product-market stakeholders include parties with whom the firm shares its industry, including suppliers and customers. Social stakeholders consist broadly of external groups and organizations that may be affected by or exercise influence over firm strategy and performance, such as unions, governments, and activist groups. The next two steps are to determine how various stakeholders are affected by the firm’s strategic decisions and the degree of power that various stakeholders wield over the firm’s ability to choose a course of action.Step 2: Determining the Effects of Key Decisions on the Stakeholder. Step 2 in stakeholder analysis is to determine the nature of the effect of the firm’s strategic decisions on the list of relevant stakeholders. Not all stakeholders are affected equally by strategic decisions. Some effects may be rather mild, and any positive or negative effects may be secondary and of minimal impact. At the other end of the spectrum, some stakeholders bear the brunt of firm decisions, good or bad.In performing step 1, companies often develop overly broad and unwieldy lists of stakeholders. At this stage, it’s critical to determine the stakeholders who are most important based on how the firm’s strategy affects the stakeholders. You must determine which of the groups still on your list have direct or indirect material claims on firm performance or which are potentially adversely affected. For instance, it is easy to see how shareholders are affected by firm strategies—their wealth either increases or decreases in correspondence with the firm’s actions. Other parties have economic interests in the firm as well, such as parties the firm interacts with in the marketplace, including suppliers and customers. The effects on other parties may be much more indirect. For instance, governments have an economic interest in firms doing well—they collect tax revenue from them. However, in cities that are well diversified with many employers, a single firm has minimal economic impact on what the government collects. Alternatively, in other areas, individual firms represent a significant contribution to local employment and tax revenue. In those situations, the effect of firm actions on the government would be much greater.Step 3: Determining Stakeholders’ Power and Influence over Decisions. The third step of a stakeholder analysis is to determine the degree to which a stakeholder group can exercise power and influence over the decisions the firm makes. Does the group have direct control over what is decided, veto power over decisions, nuisance influence, or no influence? Recognize that although the degree to which a stakeholder is affected by firm decisions (i.e., step 2) is sometimes highly correlated with their power and influence over the decision, this is often not the case. For instance, in some companies, frontline employees may be directly affected by firm decisions but have no say in what those decisions are. Power can take the form of formal voting power (boards of directors and owners), economic power (suppliers, financial institutions, and unions), or political power (dissident stockholders, political action groups, and governmental bodies). Sometimes the parties that exercise significant power over firm decisions don’t register as having a significant stake in the firm (step 2). In recent years, for example, Wal-Mart has encountered significant resistance in some communities by well-organized groups who oppose the entry of the mega-retailer. Wal-Mart executives now have to anticipate whether a vocal and politically powerful community group will oppose its new stores or aim to reduce their size, which decreases Wal-Mart’s per store profitability. Indeed, in many markets, such groups have been effective at blocking new stores, reducing their size, or changing building specifications.Once you’ve determined who has a stake in the outcomes of the firm’s decisions as well as who has power over these decisions, you’ll have a basis on which to allocate prominence in the strategy-formulation and strategy-implementation processes. The framework in the figure will also help you categorize stakeholders according to their influence in determining strategy versus their importance to strategy execution. For one thing, this distinction may help you identify major omissions in strategy formulation and implementation.Having identified stakeholder groups and differentiated them by how they are affected by firm decisions and the power they have to influence decisions, you’ll want to ask yourself some additional questions:Have I identified any vulnerable points in either the strategy or its potential implementation?Which groups are mobilized and active in promoting their interests?Have I identified supporters and opponents of the strategy?Which groups will benefit from successful execution of the strategy and which may be adversely affected?Where are various groups located? Who belongs to them? Who represents them?The stakeholder-analysis framework summarized in the figure is a good starting point. Ultimately, because mission and vision are necessarily long term in orientation, identifying important stakeholder groups will help you to understand which constituencies stand to gain or to lose the most if they’re realized.Two ChallengesTwo of the challenges of performing stakeholder analysis are determining how stakeholders are affected by a firm’s decisions and how much influence they have over the implementation of the decisions that are made. Many people have a tendency to fall into the trap of assessing all stakeholders as being important on both dimensions. In reality, not all stakeholders are affected in the same way and not all stakeholders have the same level of influence in determining what a firm does. Moreover, when stakeholder analysis is executed well, the resulting strategy has a better chance of succeeding, simply because the entities you might rely on in the implementation phase were already involved in the strategy starting with the formulation phase. Thus, you now have a good idea of how to engage various stakeholders in all the stages of the P-O-L-C framework.KEY TAKEAWAYThis section introduced stakeholders, their roles, and how to begin assessing their roles in the development of the organization’s mission and vision. While any person or organization with a stake in your organization is a stakeholder, managers are most concerned with those stakeholders who have the most influence on, or will be most influenced by, the organization. On the basis of your assessment of stakeholders, you now can be proactive in involving them in the P-O-L-C stages.EXERCISESWhat are stakeholders, and why are they relevant to mission and vision?Are stakeholders equally relevant to all parts of P-O-L-C, or only mission and vision?What is stakeholder analysis? What are the three identification steps?How does stakeholder analysis help you craft a mission and vision statement?Which important stakeholders might you intentionally exclude from a mission or vision statement?What are the risks of not conducting stakeholder analysis as an input to the formulation of your mission and vision?4.6 Crafting Mission and Vision StatementsLEARNING OBJECTIVESLearn about the basics of the mission and vision development process.Understand the content of good mission and vision statements.Communicating and Monitoring Mission and VisionAt this point, you have an understanding of what a mission and vision statement is and how creativity, passion, and stakeholder interests might be accounted for. The actual step-by-step process of developing a mission and vision might start with the mission and vision statements, but you should think of this process more broadly in terms of multiple steps: (1) the process, (2) the content of the mission and vision statements, (3) communicating mission and vision to all relevant stakeholders, and (4) monitoring. As shown in “Process, Content, Application, and Monitoring in Mission and Vision Development,” Information Week contributor Sourabh Hajela breaks out one way you might manage your mission/vision development checklist. Let’s dive in to the development process first.Mission and vision statements are statements of an organization’s purpose and potential; what you want the organization to become. Both statements should be meaningful to you and your organization. It should be shared with all of the employees in the organization to create a unified direction for everyone to move in.Process, Content, Application, and Monitoring in Mission and Vision DevelopmentLet the business drive the mission and vision.Involve all stakeholders in its development; otherwise, they won’t consider it theirs.Assign responsibility so that it’s clear how each person, including each stakeholder, can contribute.Seek expert facilitation to reach a vision supported by all.Revise and reiterate; you’ll likely go through multiple iterations before you’re satisfied.Start from where you are to get to where you want to go.Build in the values of the organization: Every organization has a soul. Tap into yours, and adjust as needed. Mission and vision built on your values will not just hold promise but also deliver on it.Build on the core competencies of the organization: A mission and vision are useless if they can’t be put into operation. This requires recognition of your organization’s strengths and weaknesses.Factor in your style: A mission and vision must reflect the leader’s style. You can’t sustain action that goes against it.Make it visual: A picture is worth a thousand words.Make it simple to understand: Complex language and disconnected statements have little impact—people can’t implement what they don’t understand.Make it achievable: A mission and vision are an organization’s dreams for the future. Unachievable goals discourage people.Phase it in: Reach for the sky—in stages.Make it actionable: If it’s too abstract, no one knows what to do next.Communicate often: Internal communications are the key to success. People need to see the mission and vision, identify with them, and know that leadership is serious about it.Create messages that relate to the audience: To adopt a mission and vision, people must see how they can achieve it, and what’s in it for them.Create messages that inspire action: It’s not what you say, but how you say it.Use it: Beyond printing it, posting it, and preaching it, you also need to practice what is laid out in the mission and vision…“walk the talk”Live it: Management must lead by example.Be real: It’s better to adjust the mission statement as needed than to not live up to the standards it sets.Identify key milestones: While traveling to your destination, acknowledge the milestones along the way.Monitor your progress: A strategic audit, combined with key metrics, can be used to measure progress against goals and objectives.Use external audit team: An external team brings objectivity, plus a fresh perspective.Sourabh HajelaAdapted from http://www.informationweek.com/news/management/showArticle.jhtml?articleID=17500069 (retrieved October 29, 2008).Mission and Vision-Development ProcessMission and vision development are analogous to the “P” (planning) in the P-O-L-C framework. Start with the people. To the greatest extent possible, let those people responsible for executing the mission and vision drive their development. Sometimes this means soliciting their input and guiding them through the development of the actual statements, but ideally, it means teaching them how to craft those statements themselves. Involve as many key stakeholders as possible in its development; otherwise, they won’t consider it theirs. Assign responsibility so that it’s clear how each person, including each stakeholder, can contribute.ContentThe content of the mission and vision statements are analogous to the O (organizing) part of the P-O-L-C framework. Begin by describing the best possible business future for your company, using a target of 5 to 10 years in the future. Your written goals should be dreams, but they should be achievable dreams. Jim Collins (author of Good to Great) suggests that the vision be very bold, or what he likes to call a BHAG—a big, hairy, audacious goal—like the United State’s goal in the 1960s to go to the moon by the end of the decade, or Martin Luther King’s vision for a nonracist America.Recognizing that the vision statement is derived from aspects of the mission statement, it is helpful to start there. Richard O’ Hallaron and his son, David R. O’ Hallaron, in The Mission Primer: Four Steps to an Effective Mission Statement, suggest that you consider a range of objectives, both financial and nonfinancial.O’Hallaron, R., & O’Hallaron, D. (2000). The Mission Primer: Four Steps to an Effective Mission Statement, Richmond: Mission Incorporated. Their approach is based on Gast’s Laws, a set of principles developed in the 1940s and 1950s by the late business professor Walter Gast. Among other ideas, Gast’s Laws hold that businesses must be dedicated to more than making money if they are to succeed. Specifically, the O’Hallarons find that the best mission statements have given attention to the following six areas:What “want-satisfying” service or commodity do we produce and work constantly to improve?How do we increase the wealth or quality of life or society?How do we provide opportunities for the productive employment of people?How are we creating a high-quality and meaningful work experience for employees?How do we live up to the obligation to provide fair and just wages?How do we fulfill the obligation to provide a fair and just return on capital?When writing your statements, use the present tense, speaking as if your business has already become what you are describing. Use descriptive statements describing what the business looks like, feels like, using words that describe all of a person’s senses. Your words will be a clear written motivation for where your business organization is headed. Mission statements, because they cover more ground, tend to be longer than vision statements, but you should aim to write no more than a page. Your words can be as long as you would like them to be, but a shorter vision statement may be easier to remember.CommunicationsThe communications step of the mission and vision statements development process is analogous to the “L” (leading) part of the P-O-L-C framework. Communicate often: Internal communications are the key to success. People need to see the vision, identify with it, and know that leadership is serious about it.Managers must evaluate both the need and the necessary tactics for persuasively communicating a strategy in four different directions: upward, downward, across, and outward.Hambrick, D. C., & Cannella, A. A. (1989). Strategy implementation as substance and selling. Academy of Management Executive, 3(4), 278–285.Communicating UpwardIncreasingly, firms rely on bottom-up innovation processes that encourage and empower middle-level and division managers to take ownership of mission and vision and propose new strategies to achieve them. Communicating upward means that someone or some group has championed the vision internally and has succeeded in convincing top management of its merits and feasibility.Communicating DownwardCommunicating downward means enlisting the support of the people who’ll be needed to implement the mission and vision. Too often, managers undertake this task only after a strategy has been set in stone, thereby running the risk of undermining both the strategy and any culture of trust and cooperation that may have existed previously. Starting on the communication process early is the best way to identify and surmount obstacles, and it usually ensures that a management team is working with a common purpose and intensity that will be important when it’s time to implement the strategy.Communicating Across and OutwardThe need to communicate across and outward reflects the fact that realization of a mission and vision will probably require cooperation from other units of the firm (across) and from key external stakeholders, such as material and capital providers, complementors, and customers (outward). Internally, for example, the strategy may call for raw materials or services to be provided by another subsidiary; perhaps it depends on sales leads from other units. The software company Emageon couldn’t get hospitals to adopt the leading-edge visualization software that was produced and sold by one subsidiary until its hardware division started cross-selling the software as well. This internal coordination required a champion from the software side to convince managers on the hardware side of the need and benefits of working together.ApplicationIt is the successful execution of this step—actually using the mission and vision statements—that eludes most organizations. “Yes, it is inconvenient and expensive to move beyond the easy path” and make decisions that support the mission statement, says Lila Booth, a Philadelphia-area consultant who is on the faculty of the Wharton Small Business Development Center. But ditching mission for expediency “is short-term thinking,” she adds, “which can be costly in the end, costly enough to put a company out of business.”Krattenmaker, T. (2002). Writing a Mission Statement That Your Company Is Willing to Live. Boston: Harvard Business School Press. That is not to say that a mission statement is written in stone. Booth cites her own consulting business. It began well before merger mania but has evolved with the times and now is dedicated in significant part to helping merged companies create common cultures. “Today, our original mission statement would be very limiting,” she says.Even the most enthusiastic proponents acknowledge that mission statements are often viewed cynically by organizations and their constituents. That is usually due to large and obvious gaps between a company’s words and deeds. “Are there companies that have managers who do the opposite of what their missions statements dictate? Of course,” says Geoffrey Abrahams, author of The Mission Statement Book. “Mission statements are tools, and tools can be used or abused or ignored.…Management must lead by example. It’s the only way employees can live up to the company’s mission statement.”Abrahams, J. (1999). The Mission Statement Book: 301 Corporate Mission Statements from America’s Top Companies. Berkeley: Ten Speed Press. Ultimately, if you are not committed to using the mission statement then you are best advised not to create one.MonitoringThe monitoring step of the mission and vision statements development process is analogous to the “C” (controlling) part of the P-O-L-C framework. Identify key milestones that are implied or explicit in the mission and vision. Since mission and vision act like a compass for a long trip to a new land, as Information Week’s Hajela suggests, “while traveling to your destination, acknowledge the milestones along the way. With these milestones you can monitor your progress: A strategic audit, combined with key metrics, can be used to measure progress against goals and objectives. To keep the process moving, try using an external audit team. One benefit is that an external team brings objectivity, plus a fresh perspective.”Retrieved October 28, 2008, from http://www.informationweek.com/news/management/showArticle.jhtml?articleID=17500069. It also helps motivate your team to stay on track.KEY TAKEAWAYThis section described some of the basic inputs into crafting mission and vision statements. It explored how mission and vision involved initiation, determination of content, communication, application, and then monitoring to be sure if and how the mission and vision were being followed and realized. In many ways, you learned how the development of mission and vision mirrors the P-O-L-C framework itself—from planning to control (monitoring).EXERCISESWho should be involved in the mission and vision development process?What are some key content areas for mission and vision?Why are organizational values important to mission and vision?Why is communication important with mission and vision?To which stakeholders should the mission and vision be communicated?What role does monitoring play in mission and vision?4.7 Developing Your Personal Mission and VisionLEARNING OBJECTIVESDetermine what mission and vision mean for you.Develop some guidelines for developing your mission and vision.Mission and vision are concepts that can be applied to you, personally, well beyond their broader relevance to the P-O-L-C framework. Personal mission and vision communicate the direction in which you are headed, as well as providing some explanation for why you are choosing one direction or set of objectives over others. Thinking about and writing down mission and vision statements for your life can help provide you with a compass as you work toward your own goals and objectives.Your Mission and VisionNote that the development of a personal mission and vision, and then a strategy for achieving them, are exactly the opposite of what most people follow. Most people do not plan further ahead than their next job or activity (if they plan their career at all). They take a job because it looks attractive, and then they see what they can do with it. We advocate looking as far into the future as you can and deciding where you want to end up and what steps will lead you there. In that way, your life and your career fit into some intelligent plan, and you are in control of your own life.GuidelinesThe first step in planning a career is obviously a long-term goal. Where do you want to end up, ultimately? Do you really want to be a CEO or president of the United States, now that you know what it costs to be either one? There are a couple basic parts to this process.BHAGFirst, set out a bold vision—Jim Collins, author of Good to Great, describes this as a BHAG a big, hairy, audacious goal.Five guiding criteria for good BHAGs is that they:Are set with understanding, not bravado.Fit squarely in the three circles of (a) what you are deeply passionate about (including your core values and purpose), (b) what drives your economic logic, and (c) what differentiates you (what you can be the best in the world at).Have a long time frame—10 to 30 years.Are clear, compelling, and easy to grasp.Directly reflect your core values and core purpose.ValuesSecond, sketch out your personal values, or “Guiding Philosophy”—a set of core values and principles like your own Declaration of Independence.ScheduleOnce the vision is set, you have to develop some long-term goal (or goals), then intermediate-term goals, and so on. If you want to be President, what jobs will you have to take first to get there and when do you have to get these jobs? Where should you live? What training do you need? What political connections do you need? Then you have to set up an orderly plan for obtaining the connections and training that you need and getting into these steppingstone jobs.Finally, you need to establish short-term goals to fit clearly into a coherent plan for your entire career. Your next job (if you are now a fairly young person) should be picked not only for its salary or for its opportunities for advancement but for its chances to provide you with the training and connections you need to reach your long-term goals. The job that is superficially attractive to you because it has a high salary, offers the opportunity for immediate advancement, or is located in a desirable place may be a mistake from the standpoint of your long-term career.Five StepsFormer business school professor, entrepreneur (founder of www.quintcareers.com), and colleague Randall S. Hansen, PhD, has done a masterful job of assembling resources that aim to help your career, including an excellent five-step plan for creating personal mission statements. With his generous permission, he has allowed us to reproduce his five-step plan—adapted by us to encompass both mission and vision—in this section.The Five-Step PlanA large percentage of companies, including most of the Fortune 500, have corporate mission and vision statements.Retrieved October 29, 2008, from http://www.quintcareers.com/creating_personal_mission_statements.html. Reproduced and adapted with written permission from Randall S. Hansen. The content of this work is his, and any errors or omissions are our responsibility. Mission and vision statements are designed to provide direction and thrust to an organization, an enduring statement of purpose. A mission and vision statement act as an invisible hand that guides the people in the organization. A mission and vision statement explains the organization’s reason for being and answers the question, “What business are we in?”A personal mission and vision statement is a bit different from a company mission statement, but the fundamental principles are the same. Writing a personal mission and vision statement offers the opportunity to establish what’s important and perhaps make a decision to stick to it before we even start a career. Or it enables us to chart a new course when we’re at a career crossroads. Steven Covey (in First Things First) refers to developing a mission and vision statement as “connecting with your own unique purpose and the profound satisfaction that comes from fulfilling it.”Covey, S. R. (1994). First Things First. New York: Simon & Schuster.A personal mission and vision statement helps job seekers identify their core values and beliefs. Michael Goodman (in The Potato Chip Difference: How to Apply Leading Edge Marketing Strategies to Landing the Job You Want) states that a personal mission statement is “an articulation of what you’re all about and what success looks like to you.”Goodman, M. (2001). The Potato Chip Difference. New York: Dialogue Press. A personal mission and vision statement also allows job seekers to identify companies that have similar values and beliefs and helps them better assess the costs and benefits of any new career opportunity.The biggest problem most job seekers face is not in wanting to have a personal mission and vision statement but actually writing it. So, to help you get started on your personal mission and vision statement, here is a five-step mission/vision-building process. Take as much time on each step as you need, and remember to dig deeply to develop a mission and vision statement that is both authentic and honest. To help you better see the process, Professor Hansen included an example of one friend’s process in developing her mission and vision statements.Sample Personal Mission Statement DevelopmentPast success:developed new product features for stagnant productpart of team that developed new positioning statement for producthelped child’s school with fundraiser that was wildly successfulincreased turnout for the opening of a new local theater companyThemes: Successes all relate to creative problem solving and execution of a solution.Core values:Hard workingIndustriousCreativityProblem solvingDecision makerFriendlyOutgoingPositiveFamily-orientedHonestIntelligentCompassionateSpiritualAnalyticalPassionateContemplativeMost important values:Problem solvingCreativityAnalyticalCompassionateDecision makerPositiveMost important value:CreativityIdentify Contributions:the world in general: develop products and services that help people achieve what they want in life. To have a lasting effect on the way people live their lives.my family: to be a leader in terms of personal outlook, compassion for others, and maintaining an ethical code; to be a good mother and a loving wife; to leave the world a better place for my children and their children.my employer or future employers: to lead by example and demonstrate how innovative and problem-solving products can be both successful in terms of solving a problem and successful in terms of profitability and revenue generation for the organization.my friends: to always have a hand held out for my friends; for them to know they can always come to me with any problem.my community: to use my talents in such a way as to give back to my community.Identify Goals:Short term: To continue my career with a progressive employer that allows me to use my skills, talent, and values to achieve success for the firm.Long term: To develop other outlets for my talents and develop a longer-term plan for diversifying my life and achieving both professional and personal success.Mission Statement:To live life completely, honestly, and compassionately, with a healthy dose of realism mixed with the imagination and dreams that all things are possible if one sets their mind to finding an answer.Vision Statement:To be the CEO of a firm that I start, that provides educational exercise experiences to K–6 schools. My company will improve children’s health and fitness, and create a lasting positive impact on their lives, and that of their children.Step 1: Identify Past Successes. Spend some time identifying four or five examples where you have had personal success in recent years. These successes could be at work, in your community, or at home. Write them down. Try to identify whether there is a common theme—or themes—to these examples. Write them down.Step 2: Identify Core Values. Develop a list of attributes that you believe identify who you are and what your priorities are. The list can be as long as you need. Once your list is complete, see whether you can narrow your values to five or six most important values. Finally, see whether you can choose the one value that is most important to you. We’ve added “Generating Ideas for Your Mission and Vision” to help jog your memory and brainstorm about what you do well and really like to do.Step 3: Identify Contributions. Make a list of the ways you could make a difference. In an ideal situation, how could you contribute best to:the world in generalyour familyyour employer or future employersyour friendsyour communityGenerating Ideas for Your Mission and VisionA useful mission and vision statement should include two pieces: what you wish to accomplish and contribute and who you want to be, the character strengths and qualities you wish to develop. While this sounds simple, those pieces of information are not always obvious. Try these tools for generating valuable information about yourself.Part IDescribe your ideal day. This is not about being practical. It is designed to include as many sides of you and your enthusiasms as possible: creative, competent, artistic, introverted, extraverted, athletic, playful, nurturing, contemplative, and so on.Imagine yourself 132 years old and surrounded by your descendants or those descendants of your friends. You are in a warm and relaxed atmosphere (such as around a fireplace). What would you say to them about what is important in life? This exercise is designed to access the values and principles that guide your life.Imagine that it is your 70th birthday (or another milestone in your life). You have been asked by national print media to write a press release about your achievements. Consider what you would want your family, friends, coworkers in your profession and in your community to say about you. What difference would you like to have made in their lives? How do you want to be remembered? This is designed to inventory your actions and accomplishments in all areas of your life.Part IIReview your notes for these three exercises. With those responses in mind, reflect on questions 1, 2, and 3 above. Then write a rough draft (a page of any length) of your mission statement. Remember that it should describe what you want to do and who you want to be. This is not a job description. Carry it with you, post copies in visible places at home and work, and revise and evaluate. Be patient with yourself. The process is as important as the outcome. After a few weeks, write another draft. Ask yourself whether your statement was based on proven principles that you believe in, if you feel direction, motivation, and inspiration when you read it. Over time, reviewing and evaluating will keep you abreast of your own development.Step 4: Identify Goals. Spend some time thinking about your priorities in life and the goals you have for yourself. Make a list of your personal goals, perhaps in the short term (up to three years) and the long term (beyond three years).Step 5: Write Mission and Vision Statements. On the basis of the first four steps and a better understanding of yourself, begin writing your personal mission and vision statements.Final thoughts: A personal mission and vision statement is, of course, personal. But if you want to see whether you have been honest in developing your personal mission and vision statement, we suggest sharing the results of this process with one or more people who are close to you. Ask for their feedback. Finally, remember that mission and vision statements are not meant to be written once and blasted into stone. You should set aside some time annually to review your career, job, goals, and mission and vision statements—and make adjustments as necessary.KEY TAKEAWAYIn this section, you learned how to think of mission and vision in terms of your personal circumstances, whether it is your career or other aspects of your life. Just as you might do in developing an organization’s vision statement, you were encouraged to think of a big, hairy audacious goal as a starting point. You also learned a five-step process for developing a personal vision statement.EXERCISESHow does a personal mission and vision statement differ from one created for an organization?What time period should a personal mission and vision statement cover?What are the five steps for creating a personal mission and vision statement?What type of goals should you start thinking about in creating a personal mission and vision?How are your strengths and weaknesses relevant to mission and vision?What stakeholders seem relevant to your personal mission and vision?

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Published - Fri, 10 Mar 2023

History, Globalization, and Values-Based Leadership - Chapter 3

Created by - Jenny Clarke

History, Globalization, and Values-Based Leadership - Chapter 3

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Learn about the history of principles of management.Know the context for contemporary principles of management.Understand key global trends.See how globalization is affecting management principles and practices.Appreciate the importance of value-based leadership (ethics) in management.The planning-organizing-leading-controlling (P-O-L-C) framework is summarized in the following figure. In this chapter, you’ll learn that some principles of management are enduring, but you’ll also see that managers need to be continually adapting to changing times. Each facet of the framework—from planning, to organizing, to leading, to controlling—has to be adapted to take advantage of, and to manage in, our changing world. Global trends affect both the style and the substance of management. As the world becomes more global, managers find themselves leading workforces that may be distributed across the country—and the world. Workers are more educated, but more is expected of them.Figure 3.2 The P-O-L-C FrameworkThe realm of managers is expanding. As a leader, you’ll be a role model in the organization, setting the tone not just for what gets done but how it gets done. Increasingly, good business practice extends to stewardship, not just of the organization but of the environment and community at large. Ethics and values-based leadership aren’t just good ideas—they’re vital to attracting talent and retaining loyal customers and business partners.3.1 Case in Point: Hanna Andersson Corporation Changes for GoodFigure 3.3Source: Used by permission from Hanna Andersson Corporation.Born from a desire to bring quality European-style children’s clothing to the United States, Hanna Andersson Corporation has sold colorful clothing and accessories since 1983. Husband and wife cofounders, Tom and Gun (pronounced “gōōn”) Denhart, started the Portland, Oregon–based company by distributing imported Swedish clothing from their home. Named for Gun’s Swedish grandmother, the company now boasts over $100 million in annual sales and employs over 500 people. Growing from an exclusive mail-order catalog business in the early 1980s, today Hanna Andersson also distributes products online, in 29 retail stores nationwide, and through select specialty retailers.Over the years, Hanna Andersson has shown that it deeply values its employees. The company provides supplemental child-care reimbursement to all employees—even part-time sales associates. Additional employee benefits include part-time and flexible work hours, considerable paid time off, and 8 hours per year of paid time for employees to volunteer in the community. More important, though, employees feel like they are part of the Hanna Andersson family. In fact, in the beginning many of the employees were friends and family members of the Denharts.It was important to the Denharts that they were involved in the decisions of the company and that those decisions took quality of life issues into account. Gun states, “If you can create balance among your work, your community, your family, and your friends, then you’re going to be more satisfied.” Examples of this philosophy infusing Hanna Andersson include the establishment of HannaDowns, a clothing recycling program where customers can return used clothing and receive a 20% off coupon for their next purchase. The charitable nature of Hanna Andersson has continued through what is now the HannaHelps program. This program awards grants and donates products to schools and nonprofit groups, helping children in the community and around the world. In addition, under Gun’s leadership Hanna Andersson established ongoing donations, 5% of pretax profits, to charities that benefit women and children.The considerable growth and development the business experienced did not come without its challenges and necessary organizational change. In the 1990s and early 2000s, increased competition from other retailers and the introduction of online commerce posed some challenges for Hanna Andersson. The Denharts found themselves without a solid growth plan for the future. They worried that they might have lost sight of market forces. Change was necessary if Hanna Andersson was to remain viable.Realizing the need for help and direction, the Denharts promoted from within the company to help initiate change and strategic growth, and in 1995, Phil Iosca took the strategic lead as CEO. Hanna Andersson was then sold to a private equity firm in 2001 and has since changed ownership several times, leading to a new business direction for the company. After selling the business, Gun remained on the Hanna board of directors until 2007. She also served as chair of the Hanna Andersson Children’s Foundation from 2001 to 2006. She still partners with the company from time to time on charitable events in the community.Under Iosca’s steady leadership, the company opened several retail stores throughout the country in 2002 and established online commerce. In 2009, Hanna Andersson began distributing merchandise wholesale through retail partners such as Nordstrom and Costco. The implementation of each of these new distribution avenues required a great deal of change within the company. HR Vice President Gretchen Peterson explains, “The growth of the retail business required the greatest shift in our internal processes from both technical systems, to inventory planning and buying to distribution processes to our organizational communication and HR processes (recruitment, compensation, etc.), as well as our marketing communication programs.” Tenured employees throughout the company found themselves in unfamiliar territory, unsure of the company’s future as the board and owners debated the risks and rewards of retail expansion. Fortunately, the changes were mostly offset by a consistent leadership team. Petersen, who has been with the company since 1994, explains, “From 1995 to 2010, we retained the same CEO (Iosca) and therefore, the face of the company and the management style did not fluctuate greatly.”When Iosca retired in early 2010, chief operating officer Adam Stone took over as CEO. He helped his company weather yet another transition with a calm push for changes within the company. To help understand different points of view at Hanna Andersson, Stone often sat in on inventory and operational planning meetings. Step by step, Stone was able to break down work initiatives so the continuing changes were not so overwhelming to the company and its valued employees. Over time, his and other company leaders’ presence has helped employees make better, more strategic decisions. Rather than resisting change, they now feel heard and understood.The decision to sell wholesale turned out to be a good one, as it has enabled the company to weather the recession’s negative effect on retail and online purchases. Accounting for approximately 10% of total sales, the company’s wholesale business is expected to boost yearly revenue by 5%. With more conscientious inventory purchases and strategic distribution initiatives, Hanna Andersson has realized a higher sales volume, lower inventory at year-end, and less liquidation. Through it all, company management has done an effective job at interpreting the desired growth goals of its owners while inspiring change within the company. With continued clear communication, direction, and willingness to try new techniques, Hanna Andersson is poised for growth and success in the future while not forgetting to take care of its employees.Case written by [citation redacted per publisher request]. Based on information from Bollier, D. (1996). Aiming higher: 25 stories of how companies prosper by combining sound management and social vision (pp. 23–35). New York: The Business Enterprise Trust; Boulé, M. (2009, July 16). Hanna Andersson employee can’t say enough of a thank-you to co-workers who helped her through cancer. Oregonian. Retrieved March 4, 2010, from http://www.oregonlive.com/news/oregonian/margie_boule/index.ssf/2009/07/hanna_andersson_employee_cant.html; Information retrieved February 28, 2010, from the Hanna Andersson Web site: http://www.hannaandersson.com; Muoio, A. (1998, November 30). Giving back. Fast Company. Retrieved March 1, 2010, from http://www.fastcompany.com/magazine/20/one.html?page=0%2C1; Goldfield, R. (2002, June 14). Hanna sees bricks-and-mortar future. Portland Business Journal; Peterson, G. (2010, March 5 and April 5). Personal communication; Information retrieved March 1, 2010, from http://www.answers.com/topic/hanna-andersson; Raphel, M., & Raphel, N. (1995). Up the loyalty ladder (pp. 83–90). New York: HarperCollins.DISCUSSION QUESTIONSHow has Hanna Andersson applied values-based leadership in terms of the organization’s choices related to P-O-L-C?How did company leaders like Iosca, Petersen, and Stone help facilitate change within the company? Did they remain consistent with the values of the founders?What were the reasons for organizational change within Hanna Andersson, both internally and externally?What unique challenges do family-owned and -operated businesses face?How did the mission of Hanna Andersson evolve over time?3.2 Ancient History: Management Through the 1990sLEARNING OBJECTIVESEarly motivation for development of principles.What problems did these principles solve?What were the limitations of these early views?Early Management PrinciplesEarly management principles were born of necessity. The most influential of these early principles were set forth by Henri Fayol a French mining engineer. In 1888, Fayol became director of a mining company. The company was in difficulty, but Fayol was able to turn it around and make the company profitable again. When he retired, Fayol wrote down what he’d done to save the company. He helped develop an “administrative science” and developed principles that he thought all organizations should follow if they were to run properly.Fayol’s 14 Principles of ManagementSpecialization/Division of LaborBy specializing in a limited set of activities, workers become more efficient and increase their output.Authority/ResponsibilityManagers must have the authority to issue commands, but with that authority comes the responsibility to ensure that the work gets done.DisciplineWorkers must obey orders if the business is to run smoothly. But good discipline is the result of effective leadership: workers must understand the rules and management should use penalties judiciously if workers violate the rules.Unity of CommandAn employee should receive orders only from one boss to avoid conflicting instructions.Unity of DirectionEach unit or group has only one boss and follows one plan so that work is coordinated.Subordination of Individual InterestThe interests of one person should never take precedence over what is best for the company as a whole.RemunerationWorkers must be fairly paid for their services.CentralizationCentralization refers to decision making: specifically, whether decisions are centralized (made by management) or decentralized (made by employees). Fayol believed that whether a company should centralize or decentralize its decision making depended on the company’s situation and the quality of its workers.Line of AuthorityThe line of authority moves from top management down to the lowest ranks. This hierarchy is necessary for unity of command, but communication can also occur laterally if the bosses are kept aware of it. The line should not be overextended or have too many levels.OrderOrderliness refers both to the environment and materials as well as to the policies and rules. People and materials should be in the right place at the right time.EquityFairness (equity), dignity, and respect should pervade the organization. Bosses must treat employees well, with a “combination of kindliness and justice.”Stability of TenureOrganizations do best when tenure is high (i.e., turnover is low). People need time to learn their jobs, and stability promotes loyalty. High employee turnover is inefficient.InitiativeAllowing everyone in the organization the right to create plans and carry them out will make them more enthusiastic and will encourage them to work harder.Esprit de CorpsHarmony and team spirit across the organization builds morale and unity.Time and MotionFrederick Winslow Taylor, a contemporary of Fayol’s, formalized the principles of scientific management in his 1911 book, The Principles of Scientific Management. Taylor described how productivity could be greatly improved by applying the scientific method to management; for this reason, the scientific approach is sometimes referred to as Taylorism.Taylor is most famous for his “time studies,” in which he used a stopwatch to time how long it took a worker to perform a task, such as shoveling coal or moving heavy loads. Then he experimented with different ways to do the tasks to save time. Sometimes the improvement came from better tools. For example, Taylor devised the “science of shoveling,” in which he conducted time studies to determine how much weight a worker could lift with a shovel without tiring. He determined that 21 pounds was the optimal weight. But since the employer expected each worker to bring his own shovel, and there were different materials to be shoveled on the job, it was hard to ensure that 21-pound optimum. So, Taylor provided workers with the optimal shovel for each density of materials, like coal, dirt, snow, and so on. With these optimal shovels, workers became three or four times more productive, and they were rewarded with pay increases.Frank Gilbreth and Lillian Moller Gilbreth, his wife (who outlived Frank by 48 years!), were associates of Taylor and were likewise interested in standardization of work to improve productivity.Retrieved January 28, 2009, from http://en.wikipedia.org/wiki/Cheaper_by_the_Dozen. Cheaper by the Dozen was made into a 1950 motion picture starring Clifton Webb and Myrna Loy as Frank and Lillian Gilbreth. They went one better on Taylor’s time studies, devising “motion studies” by photographing the individual movements of each worker (they attached lights to workers’ hands and photographed their motions at slow speeds). The Gilbreths then carefully analyzed the motions and removed unnecessary ones. These motion studies were preceded by timing each task, so the studies were called “time and motion studies.”Applying time and motion studies to bricklaying, for example, the Gilbreths devised a way for workers to lay bricks that eliminated wasted motion and raised their productivity from 1,000 bricks per day to 2,700 bricks per day. Frank Gilbreth applied the same technique to personal tasks, like coming up with “the best way to get dressed in the morning.” He suggested the best way to button the waistcoat, for example, was from bottom up rather than top down. Why? Because then a man could straighten his tie in the same motion, rather than having to raise his hands back up from the bottom of the waistcoat.Limitations of the Early ViewsFayol, Taylor, and the Gilbreths all addressed productivity improvement and how to run an organization smoothly. But those views presumed that managers were overseeing manual labor tasks. As work began to require less manual labor and more knowledge work, the principles they had developed became less effective. Worse, the principles of Taylorism tended to dehumanize workers. The writer Upton Sinclair who raised awareness of deplorable working conditions in the meatpacking industry in his 1906 book, The Jungle, was one of Taylor’s vocal critics. Sinclair pointed out the relatively small increase in pay (61%) that workers received compared with their increased productivity (362%). Frederick Taylor answered Sinclair’s criticism, saying that workers should not get the full benefit because it was management that devised and taught the workers to produce more. But Taylor’s own words compare workers to beasts of burden: The worker is “not an extraordinary man difficult to find; he is merely a man more or less the type of an ox, heavy both mentally and physically.”Sinclair, U. (1911, June). A criticism. American Magazine, 243–244; Taylor, F. W. (June 1911). An answer to the criticism. American Magazine, 243–244. Retrieved January 28, 2009, from http://stevens.cdmhost.com/cdm4/document.php?CISOROOT=/p4100coll1&CISOPTR=244&REC=14&CISOSHOW=242.When work was manual, it made sense for a manager to observe workers doing a task and to devise the most efficient motions and tools to do that task. As we moved from a manufacturing society to a service-based one, that kind of analysis had less relevance. Managers can’t see inside the head of a software engineer to devise the fastest way to write code. Effective software programming depends on knowledge work, not typing speed.Likewise, a services-based economy requires interactions between employees and customers. Employees have to be able to improvise, and they have to be motivated and happy if they are to serve the customer in a friendly way. Therefore, new management theories were developed to address the new world of management and overcome the shortcomings of the early views.Finally, early views of management were heavily oriented toward efficiency, at the expense of attention to the manager-as-leader. That is, a manager basically directs resources to complete predetermined goals or projects. For example, a manager may engage in hiring, training, and scheduling employees to accomplish work in the most efficient and cost-effective manner possible. A manager is considered a failure if he or she is not able to complete the project or goals with efficiency or when the cost becomes too high. However, a leader within a company develops individuals to complete predetermined goals and projects. A leader develops relationships with his or her employees by building communication, by evoking images of success, and by eliciting loyalty. Thus, later views of management evoke notions of leaders and leadership in discussing the challenges and opportunities for modern managers.Management Ideas of the 1990sPeter Drucker was the first scholar to write about how to manage knowledge workers, with his earliest work appearing in 1969. Drucker addressed topics like management of professionals, the discipline of entrepreneurship and innovation, and how people make decisions. In 1982, Tom Peters and Robert Waterman wrote In Search of Excellence, which became an international best seller and ushered a business revolution by changing the way managers viewed their relationships with employees and customers. On the basis of the authors’ research focusing on 43 of America’s most successful companies in six major industries, the book introduced nine principles of management that are embodied in excellent organizations:Managing Ambiguity and ParadoxThe ability of managers to hold two opposing ideas in mind at the same time and still be able to function effectively.A Bias for ActionA culture of impatience with lethargy and inertia that otherwise leaves organizations unresponsive.Close to the CustomerStaying close to the customer to understand and anticipate customer needs and wants.Autonomy and EntrepreneurshipActions that foster innovation and nurture customer and product champions.Productivity through PeopleTreating rank-and-file employees as a source of quality.Hands-On, Value-DrivenA management philosophy that guides everyday practice and shows management’s commitment.Stick to the KnittingStay with what you do well and the businesses you know best.Simple Form, Lean StaffThe best companies have very minimal, lean headquarters staff.Simultaneous Loose-Tight PropertiesPeters, T. J., & Waterman, R. H. (1982). In Search of Excellence. New York: Knopf.Autonomy in shop-floor activities plus centralized values.Following up, Peters wrote a Passion for Excellence, which placed further emphasis on leadership, innovation, and valuing people. His book Thriving on Chaos, published the day of the biggest stock market crash of the time (“Black Monday,” October 19, 1987), addressed the uncertainty of the times; and Liberation Management, published in 1992, laid out 45 prescriptions for how to lead companies in a rapidly changing world. The book called for empowering people by involving everyone in decision making and eliminating bureaucratic rules and humiliating conditions. Peters urged organizational leaders (i.e., managers) to celebrate and recognize employees for their contributions. His advice to leaders was to “master paradox” (i.e., develop a level of comfort with complexity and ambiguity) and establish direction for the company by developing an inspiring vision and leading by example.Beginning in the 1970s, Warren Bennis pioneered a new theory of leadership that addressed the need for leaders to have vision and to communicate that vision. More than just a manager, an effective leader was defined as someone with the ability to influence and motivate others not only to perform work tasks but also to support the organization’s values and meet the organization’s goals. Different views of leadership through the ages are shown next.Views of Leadership Through the AgesA leader is a dealer in hope.—NapoleonI suppose that leadership at one time meant muscle; but today it means getting along with people.—Indira GandhiWhat leaders really do: set direction, align people, and motivate people.—John KotterKotter, J. P. (1990, May–June). What leaders really do. Harvard Business Review, pp. 85–95.KEY TAKEAWAYEarly management theorists developed principles for managing organizations that suited the times. A century ago, few workers were highly educated; most work was manual, tasks were repetitive, and rates of change were slow. Hierarchy brought unity and control, and principles of management in which managers defined tasks and coordinated workers to move in a unified direction made sense. As the economy moved from manufacturing to services, the need for engaging workers’ minds and hearts became more important. Drucker, Peters, and Waterman presented ideas on how managers could achieve excellence in a continually changing business environment, while Bennis encouraged managers to become inspiring leaders who empowered people.EXERCISESWhat goals seem to dominate early management principles?Do you see any commonalities between Fayol’s principles of management from 1911 and those of Tom Peters in the 1990s?Are there any jobs today for which time and motion studies would make sense to do? Would any other skills need to be taught as well?What do early management principles leave out?How would you put some of the ideas of the 1990s into practice?What aspects of P-O-L-C would be most likely to change based on what you have learned in this section?3.3 Contemporary Principles of ManagementLEARNING OBJECTIVESRecognize organizations as social movements.Understand the benefits of social networking.Recognize learning organizations.Understand virtual organizations.Corporations as Social MovementsTraditionally, we’ve thought of corporations as organizations that had clear boundaries, formal procedures, and well-defined authority structures. In contrast, social movements are seen as more spontaneous and fluid. The term social movement refers to a type of group action that is focused on specific political or social issues; examples include the civil rights movement, the feminist movement, and the gay rights movement. Leaders of social movements depend on charisma rather than authority to motivate participants to action. Contemporary management theory, however, is showing that the lines between the two are blurring: corporations are becoming more like social movements, and social movements are taking on more permanence. Just as companies are outsourcing specific jobs, so social movements can contract out tasks like lobbying and fundraising.Corporations can implement initiatives that mimic a social movement. Consider how the CEO of one bank described a program he introduced: “The hierarchical management structure will give way to some collective activities that will improve our effectiveness in the marketplace. Decisions won’t flow from a management level to people on the line who are expected to implement those decisions.…We’re telling everyone, choose a process, figure out what and where the problems are, work together to come up with solutions, and then put your solutions to work.”Davis, G. F., McAdam, D., Scott, W. R., & Zald, M. N. (Eds.). (2005). Social Movements and Organization Theory. Cambridge Studies in Contentious Politics. Cambridge, UK: Cambridge University Press, 283. Thus, more and more leading businesses are harnessing the mechanics of social movements to improve how they will manage their businesses in the future.Social NetworkingSocial networking refers to systems that allow members of a specific site to learn about other members’ skills, talents, knowledge, or preferences. Companies use these systems internally to help identify experts.In the world, at large, social networks are groups of individuals who share a common interest or passion. Poker players, dog lovers, and high school alumni are a few examples of social networks in action. In the corporate world, a social network is made up of individuals who share an employer and, potentially, other interests as well. But in the pre-Internet age, managers lacked the tools to recognize or tap the business value of in-house social networks. The company softball team was a social network, sure. But what did that have to do with the bottom line?Today, social networks are starting points for corporate innovation: potentially limitless arrangements of individuals inspired by opportunities, affinities, or tasks. People feel better and work better when they belong to a group of other people like themselves.Rummler, L. (2007, July). Corporate social networking updates definition of women’s groups. Retrieved January 28, 2009, from http://www.talentmgt.com/newsletters/recruitment_perspectives/2007/July/380/index.php. This new attitude toward social networks in the workplace has been fueled by the growth of social networking sites like Facebook.Facebook was started by then-college student Mark Zuckerberg in 2004 as a way of connecting a social network—specifically, university students. Since then, Facebook has changed the way organizations connect as well. Some companies maintain a physical presence on Facebook that allows consumers to chime in about their passions (or lack of them) for corporate offerings, news, and products. Starbucks has adopted this model, asking consumers to help them revive their product lines and image.As Zuckerberg told the Wall Street Journal, “We just want to share information more efficiently.”Vara, V. (2007, May 21). Facebook opens its pages as a way to fuel growth. Wall Street Journal. Retrieved January 28, 2009, from http://online.wsj.com/public/article/SB117971397890009177-wjdKPmjAqS_9ZZbwiRp_CoSqvwQ_20070620.html. And, in the information age, that’s what social networks do best. Companies are applying the online social networking model of open and closed groups to their corporate intranets, creating secure sites for employees in different locations to collaborate on projects based on common interests, management directives, and incentives. For example, IBM’s pilot virtual world will let Big Blue employees use chat, instant messaging, and voice communication programs while also connecting to user-generated content in the public spaces of Second Life, another large social networking site. IBM also opened a virtual sales center in Second Life and, separately from the Second Life partnership, is building an internal virtual world where work groups can have meetings.The use of online social networking principles can open the door to outside collaborations. For example, Netflix offered a million-dollar reward to anyone in the company’s social network of interested inventors who could improve the algorithm that matches movie lovers to new titles they might enjoy. Companies like Procter & Gamble and InnoCentive are tapping social networks of scientists to improve their products.Social networks fueled by passion can help managers retain, motivate, and educate staff. They might even help Facebook’s Mark Zuckerberg with an in-house dilemma as his company grows. According to the Wall Street Journal, the world’s most dynamic social networking site has “little management experience.”Learning OrganizationsIn a 1993 article, Harvard Business School professor David Garvin defined a learning organization as “an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.”Garvin, D. (1993, July–August). Building a learning organization. Harvard Business Review, 78–91. The five building blocks of learning organizations areSystematic problem solving: The company must have a consistent method for solving problems, using data and statistical tools rather than assumptions.Experimentation: Experiments are a way to test ideas in small steps. Experiments let companies hunt for and test new knowledge, such as new ways of recycling waste or of structuring an incentive program.Learning from past experience: It’s essential for companies to review projects and products to learn what worked and what didn’t. Boeing, for example, systematically gathered hundreds of “lessons learned” from previous airplane models, such as the 737 and 747, which it applied to the 757s and 767s, making those the most successful, error-free launches in Boeing’s history.Learning from others: Recognizing that good ideas come from anywhere, not just inside the company, learning organizations network with other companies in a continual search for good ideas to adapt and adopt.Transferring knowledge: Sharing knowledge quickly throughout the organization is the way to make everyone a smart, contributing member.Virtual OrganizationsA virtual organization is one in which employees work remotely—sometimes within the same city, but more often across a country and across national borders. The company relies on computer and telecommunications technologies instead of physical presence for communication between employees. E-mail, wikis, Web meetings (i.e., like Webex or GoToMeeting), phone, and Internet relay chat (IRC) are used extensively to keep everyone in touch. Virtual companies present special leadership challenges because it’s essential for leaders to keep people informed of what they are supposed to be doing and what other arms of the organization are doing. Communication in a commons area is preferable to one-on-one communication because it keeps everyone up to speed and promotes learning across the organization.The Value of WikisWikis provide companies with a number of benefits:Tapscott, A., & A. D. Williams. (2006). Wikinomics: How Mass Collaboration Changes Everything. New York: Portfolio.Wikis pool the talent of experts as well as everyone from across the company and beyond it—in all time zones and geographic locations.Input from unanticipated people brings fresh ideas and unexpected connections.Wikis let people contribute to a project any time, giving them flexibility in managing their time.It’s easy to see the evolution of an idea, and new people can get up to speed quickly by seeing the history of the project.Co-creation of solutions eliminates the need to “sell” those solutions to get buy-in.Wikis cut the need for e-mail by 75% and the need for meetings by 50%.With more and more companies outsourcing work to other countries, managers are turning to tools like wikis to structure project work globally. A wiki is a way for many people to collaborate and contribute to an online document or discussion (see “The Value of Wikis”). The document remains available for people to access anytime. The most famous example is Wikipedia. A wikified organization puts information into everyone’s hands. Managers don’t just talk about empowering workers—the access to information and communication empowers workers directly. People who are passionate about an idea can tap into the network to make the idea happen. Customers, too, can rally around an issue and contribute their opinions.Many companies that are not solely virtual use the principles of a virtual organization as a way to structure the work of globally distributed teams. VeriFone, one of the largest providers of electronic payment systems worldwide, has development teams working on software projects around the world. In what the company calls a “relay race,” developers in Dallas working on a rush project send unfinished work at quitting time to another development center in Laupahoehoe, Hawaii. When the sun sets there, the project is handed off to programmers in Bangalore, India, for further work, and by morning, it’s back in Dallas, 16 hours closer to completion. Similarly, midwestern Paper Converting Machine Co. (PCMC) outsourced some design work to Chennai, India. Having U.S. and Indian designers collaborate 24/7 has helped PCMC slash development costs and time, enabling the company to stay in business, according to CEO Robert Chapman. Chapman said, ““We can compete and create great American jobs, but not without offshoring.”Engardio, P. (2006, January 30). The future of outsourcing. BusinessWeek.Virtual organizations also pose management challenges. In practical terms, if everyone is empowered to be a decision maker but various people disagree, how can decisions be made? If all workers can work at the times they choose, how can management be sure that workers are doing their work—as opposed to reading Web sites for fun, shopping, or networking with friends—and that they are taking appropriate breaks from work to avoid burnout? There are also challenges related to the virtual environment’s dependence on computers and Web security.KEY TAKEAWAYIn today’s fast-changing world, organizations are becoming more like social movements, with more fluid boundaries and more participation in leadership across all levels. Social networks within corporations let employees find out about one another and access the people who have the skills, knowledge, or connections to get the job done. Continuous learning is important, not just for individuals but for organizations as a whole, to transfer knowledge and try out new ideas as the pace of change increases. Virtual organizations can speed up cycle time, but they pose new challenges for managers on how to manage remote workers. Communications technologies and the Web let employees work from anywhere—around the corner or around the world—and require special attention to managing communication.EXERCISESWhat commonalities do you see between organizations and social movements?How would you use a social network to solve a work-related task?Why do social networks inspire employees?How do social networks help managers plan, organize, lead, and control?What steps would you take to help your organization become a learning organization?What are the advantages of a virtual organization?What aspects of P-O-L-C would be most likely to change based on what you have learned in this section?3.4 Global TrendsLEARNING OBJECTIVESWhat are the top 10 ways that the world is changing?What is the pace of these changes?As the summary “Top Trends” suggests, we are living in exciting times, and you’re at the forefront of it. The world is changing in dramatic ways, and as a manager, you’re in the best position to take advantage of these changes. Let’s look at 10 major ways in which the world is changing; we’ll characterize the first five as challenges and the next five as solutions.Top TrendsTop 5 Challenge TrendsIncreasing Concern for the EnvironmentGreater Personalization and CustomizationFaster Pace of InnovationIncreasing ComplexityIncreasing Competition for TalentTop 5 Solution TrendsBecoming More ConnectedBecoming More GlobalBecoming More MobileRise of the Creative ClassIncreasing CollaborationTop 5 Challenge TrendsIncreasing Concern for the EnvironmentWe all seem to believe that the weather has been getting weirder in recent decades, and analysis by the National Oceanic and Atmospheric Administration (NOAA) suggests that there have been more catastrophic weather events in recent years than 10–20 years ago.Retrieved October 7, 2008, from http://www.ncdc.noaa.gov/oa/climate/severeweather/extremes.html. People are seeing the growing threat of global warming, which is leading to failing crops, rising sea levels, shortages of drinking water, and increasing death tolls from disease outbreaks such as malaria and dengue fever. Currently, 175 nations have signed the Kyoto Protocol on climate change and pledged to begin the long process of reducing greenhouse gas emissions. According to McKinsey’s Global Survey of Business Executives, executives across the world believe that business plays a wider role in society and has responsibility to address issues such as environmental concerns beyond just following the letter of the law to minimize pollution. More and more companies now watch the “triple bottom line”—the benchmark of how they benefit, not just (1) profits but also (2) employees and (3) the environment as a whole. Companies realize they have to take bold steps to minimize their carbon footprint, create environmentally friendly products, and manage the company for more than just the next quarter’s profits. Managers can’t simply “greenwash” (pretend to be green through tiny steps and heavy advertising).Greater Personalization and CustomizationWe’re no longer happy with cookie-cutter products. Consumers are demanding more say in products and services. One size no longer fits all, and that means tailoring products and services to meet specific customer preferences. And as companies sell their products globally, that tailoring has to meet vastly different needs, cultural sensitivities, and income levels. Even something simple such as Tide laundry detergent can come in hundreds of potential variants in terms of formulations (powders, liquids, tablets), additives (whiteners, softeners, enzymes), fragrances (unscented, mountain fresh, floral), and package sizes (from single-load laundromat sizes to massive family/economy sizes). Customization and the growing numbers of products mean managing more services and more products. For example, for just $4.99 plus shipping, you can create your own Kleenex oval tissue box!Retrieved October 13, 2008, from http://www.mykleenextissue.com/?WT.srch=1&WT.mc_id=5659768&iq_id=5659768. Managing for mass production won’t suffice in the future.Faster Pace of InnovationWe all want the next new thing, and we want it now. New models, new products, and new variations—companies are speeding new products to market in response to customer demands. The Finland-based mobile phone maker Nokia sells 150 different devices, of which 50–60 are newly introduced each year. The new variations are tailored to local languages, case colors, carriers, add-ons, and content. David Glazer, engineering director at Google, explained how his company adapts to this fast pace: “Google has a high tolerance for chaos and ambiguity. When we started OpenSocial [a universal platform for social-network applications], we didn’t know what the outcome was going to be.” So Google started running a bunch of experiments. “We set an operational tempo: when in doubt, do something,” Glazer said, “If you have two paths and you’re not sure which is right, take the fastest path.”Fast company. (2008, March). Retrieved January 28, 2009, from http://www.fastcompany.com/magazine/123/google.html.Increasing ComplexityBecause we want more sustainability, more customization, and more innovation, companies face growing complexity. Nokia’s 50–60 new phone models a year all have 300–400 components, some of which contain millions or hundreds of millions of transistors. Those components have to arrive at the right manufacturing location (Nokia has 10 worldwide) from whichever country they originated and arrive just in time to be manufactured.Increasing Competition for TalentWe need people who can solve all these tough problems, and that’s a challenge all by itself. According to McKinsey’s global survey of trends, business executives think that this trend, among all trends, will have the greatest effect on their companies in the next five years. Jobs are also getting more complex. Consider people who work in warehouses doing shipping and receiving. At Intel, these workers were jokingly called “knuckle-dragging box pushers” and known for using their brawn to move boxes. Now, the field of transportation and shipping has become known as “supply chain management” and employees need brains as well as brawn—they need to know science and advanced math. They’re called on to do mathematical models of transportation networks to find the most efficient trucking routes (to minimize environmental impact) and to load the truck for balance (to minimize fuel use) and for speed of unloading at each destination. Intel now acknowledges the skills that supply chain people need. The company created a career ladder leading to “supply chain master” that recognizes employees for developing expertise in supply chain modeling, statistics, risk management, and transportation planning. Overall, demand will grow for new types of talent such as in the green energy industry. At the same time, companies face a shrinking supply of seasoned managers as baby boomers retire in droves. Companies will have to deal with shortages of specific skills.Top 5 Solution TrendsBecoming More ConnectedWe can now use the Internet and World Wide Web to connect people with people as never before. By mid-2008, more than 1.4 billion people were online, and that number continues to increase each year as the developing world catches up with the developed world on Internet usage.Retrieved October 7, 2000, from http://www.internetworldstats.com/stats.htm. Through over a 100 million Web sites, we can access information, words, sounds, pictures, and video with an ease previously unimaginable.Becoming More GlobalWe can now tap into more global suppliers and global talent. Whatever problem a manager faces, someone in the world probably has the innovative products, the knowledge, or the talent to address the problem. And the Internet gives managers to the tools to help problems find solutions, customers find suppliers, and innovators find markets. The global problems we face will require people to work together to solve them. Ideas need to be shaped and implemented. Moving ideas around the world is a lot less costly and generates less greenhouse gases than moving people and products around the world. Organizations and social movements alike are using social networking to help people find others with the skills and talents to solve pressing problems.Becoming More MobileWe can now reach employees, suppliers, and customers wherever they are. By the end of 2008, 60% of the world’s population—4 billion people—were using mobile phones.Retrieved October 13, 2008, from http://www.itu.int/newsroom/press_releases/2008/29.html. And, like Internet use, mobile phone adoption continues to grow. The penetration of mobile phones is changing the way we do business because people are more connected and able to share more information. Two-way, real-time dialogue and collaboration are available to people anytime, anywhere. The low cost of phones compared with computers puts them in the hands of more people around the world, and the increasing sophistication of software and services for the phone expands its use in business settings. Phones are not just a voice communication device—they can send text as well as be a connective device to send data. The fastest mobile phone growth is in developing countries, bringing connectivity to the remotest regions. Fisherman off the coast of southern India can now call around to prospective buyers of their catch before they go ashore, which is increasing their profits by 8% while actually lowering the overall price consumers have to pay for fish by 4%.Corbett, S. (2008, April 13). Can the cellphone help end global poverty? New York Times. In South Africa, 85% of small black-owned businesses rely solely on mobile phones. Nokia has 120,000 outlets selling phones in India, where half the population lives in rural areas, not cities.Rise of the Creative ClassWith blogs, Flickr, and YouTube, anyone can post their creative efforts. And with open source and wikis, anyone can contribute ideas and insights. We have ubiquitous opportunities for creativity that are nurturing a new creative class. For example, OhmyNews, a popular newspaper, is written by 60,000 contributing “citizen reporters.” It has become one of South Korea’s most influential news sources, with more than 750,000 unique users a day.Hua, V. (2007, March 27). South Korea: Everyone’s a Journalist. http://www.pbs.org/frontlineworld/rough/2007/03/south_korea.html; Schonfeld, & Yi-Wyn Yen. It’s a Web, Web, Web 2.0 world. Business 2.0 Magazinehttp://money.cnn.com/galleries/2007/biz2/0707/gallery.web_world.biz2/14.html. The demand for workers and ability for workers to work from anywhere may lead to an “e-lance economy.” Workers may become free agents, working temporarily on one project and then moving to another when that project is done. Mobile connectivity means these new workers can live anywhere in the world and can work from anywhere in their community. For you as a manager, this means managing workers who might be in a cubicle in Columbus, Ohio, an apartment in Amsterdam, or an Internet café in Bangalore.Increasing CollaborationThese solution trends combine to foster a rise in collaboration across space and time. We can now bring more people together to solve more problems more quickly. To design new products quickly—and make sure they meet consumer needs—companies are now looking beyond their four walls for innovation. Google, for example, identifies itself as an organization that believes in open, decentralized innovation. “Google can’t do everything. And we shouldn’t,” said Andy Rubin, senior director of Mobile Platforms. “That’s why we formed the Open Handset Alliance with more than 34 partners.”Fast company. (2008, March). Retrieved January 28, 2009, from http://www.fastcompany.com/magazine/123/google.html. While the handset alliance is about open cell phones (i.e., phones that aren’t tied to any particular phone company and can be programmed by users just like Apple or Palm’s “apps”), collaboration means much more than communications. People can now not just communicate but actually collaborate, building coalitions, projects, and products.Friedman, T. (2005). The World Is Flat: A Brief History of the Twenty-first Century. New York: Farrar, Straus & Giroux, 81. Groups self-organize on the Web. For example, the MIT-based Vehicle Design Summit is virtual, so students from around the world can participate. The goal is to make a low-cost, 200-mpg four-seater for the Indian market; in 2008, about 200 students participated in this international open-source project.Retrieved April 2008 from http://www.fastcompany.com/magazine/124/the-amazing-race.html. A cross section of more trend predictions follows.Trends, Trends, TrendsIt seems that trend-tracking has become somewhat of a business. Glance over these top trends from the editors of Wired, McKinsey Quarterly, and USA Today.Wired 2008 Business TrendsOpen Source TycoonsSocial Networks Grow UpGreen on the OutsideInvisible InternetRise of the InstapreneurBuilding a Better BannerInvented in ChinaVCs Look for a New LifeThe Human TouchWired. (2008, March). http://www.wired.com/techbiz/it/magazine/16–04/bz_opensource.Top business trends likely to have the greatest effect on business over the next five yearsCompetition for talent will intensify, become more global.Centers of economic activity will shift globally, regionally.Technological connectivity will increase.Ubiquitous access to information will change economics of knowledge.Demand for natural resources will grow, as will strain on environment.Population in developed economies will age.Consumer landscape will change, expand significantly.Role, behavior of business will come under increasing scrutiny.Organizations will become larger, more complex.New global industry structures will emerge (e.g., private equity, networked).The organizational challenges of global trends: A McKinsey Global Survey. (2007, November). McKinsey Quarterly. http://www.mckinseyquarterly.com/Countdown of the biggest trends in small businessWeb 2.0Rise of e-marketingLittle is the new bigThe new consumerFragmentationThe world is getting flatterPersonalizationWork anywhere, any placeGlobal warming may put you out of businessRetrieved January 28, 2009, from http://www.usatoday.com/money/smallbusiness/columnist/strauss/2007-01-07-trends-2_x.htm.KEY TAKEAWAYToday’s world faces many challenges, from the need to protect the natural environment to the rapid pace of innovation and change. Technological connectivity is bringing the world closer together and enabling people to work from anywhere. Demand for talent and low-cost workers gives rise to outsourcing and employees working remotely, whether from home or from remote different countries. At the same time, information is now available to more and more people. This drives demand for personalization. It increases complexity but at the same time gives us the collaboration tools needed to solve tough problems.EXERCISESHow do you manage innovation if ideas can come from anywhere, including people who aren’t your direct employees—or aren’t even part of the company?If, according to some trends, you can work anytime and anywhere, how do you decide when to work? When do you stop working?What advantages do you see from a global workforce?What commonalities do you see across the trends presented in “Trends, Trends, Trends”?Which of the trends depend on technology?What aspects of P-O-L-C would be most likely to change based on what you have learned in this section?3.5 Globalization and Principles of ManagementLEARNING OBJECTIVESWhy might global trends influence management principles?What is the GLOBE project, and why is it relevant to management?What is a cultural dimension, and how do cultural dimensions affect business dealings and management decisions?Globalization and Cross-Cultural LessonsDespite the growing importance of global business, Fortune 500 companies have reported a shortage of global managers with the necessary skills.2008 Global Relocation Trends Survey report. Retrieved October 13, 2008, from http://www.gmacglobalrelocation.com; Gregersen, H. B., Morrison, A. J., & Black, J. S. (1998, Fall). Developing leaders for the global frontier. Sloan Management Review, 21–32. Some experts have argued that most U.S. companies are not positioned to implement global strategies due to a lack of global leadership capabilities.Hollenbeck, G. P., & McCall, M. W. 2003. Competence, not competencies: Making global executive development work. In W. Mobley & P. Dorfman (Eds.), Advances in Global Leadership (Vol. 3). Oxford: JAI Press.It’s easy to understand the problem: communicating and working with people from different countries can be a challenge—not just because of language issues but also because of different cultural norms. For example, in the United States, we tend to be direct in our communication. If you ask a U.S. manager a question, you’ll tend to get a direct answer. In other cultures, particularly in southern Europe and Japan, the answer to a question begins with background and context—not the bottom line—so that the listener will understand how the person arrived at the conclusion. Similarly, in some cultures, it is considered rude to deliver bad news or say “no” to a request—instead, the speaker would give a noncommittal answer like “we’ll see” or “we’ll try.”Country-by-country differences are so prevalent that a worldwide team of scholars proposed to create and validate a theory of the relationship between culture and societal, organizational, and leadership effectiveness. Called the GLOBE Project, it included 170 researchers working together for 10 years to collect and analyze data on cultural values and practices and leadership attributes from more than 17,000 managers in 62 societal cultures. In its 2006 report, GLOBE identified the following nine dimensions of culture.Javidan, M., Dorfman, P. W., de Luque, M. S., & House R. J. (2006, February). In the eye of the beholder: Cross cultural lessons in leadership from Project GLOBE. Academy of Management Perspectives, 20, 67–90.Performance OrientationShould you reward people for performance improvement and excellence? In countries like the United States and Singapore, the answer is yes. Organizations in these countries use employee training and development to help people improve their skills and performance. In countries like Russia and Greece, however, family and background count for more than performance.Uncertainty AvoidanceLife often brings unpredictable events, and with them anxiety. Uncertainty avoidance reflects the extent to which members of a society attempt to cope with anxiety by minimizing uncertainty. Should you establish rules, procedures, and social norms to help your employees deal with uncertainty? In countries where uncertainty avoidance is high, like Brazil and Switzerland, the answer is yes. People in such societies want strict rules, laws, and policies to eliminate or control the unexpected. Employees in these countries tend to seek order, consistency, and structure. Countries with low uncertainty avoidance, in contrast, are less rule-oriented. They tolerate a variety of opinions and are open to change and taking risks. Countries with low uncertainty avoidance include Hong Kong and Malaysia.AssertivenessHow assertive, confrontational, or aggressive should you be in relationships with others? In highly assertive countries like the United States and Austria, competition between individuals and groups is encouraged. Managers may set up incentives that reward the best idea, even it it’s contrary to established practices. People in less assertive countries, like Sweden and New Zealand, prefer harmony in relationships and emphasize loyalty and solidarity.Power DistancePower distance reflects the extent to which the less powerful members of institutions and organizations expect and accept that power is distributed unequally. Should you distribute decision-making power equally among the group? In high-power-distance countries like Thailand, Brazil, and France, the answer is no. People in these societies expect unequal power distribution and greater stratification, whether that stratification is economic, social, or political. People in positions of authority in these countries expect (and receive) obedience. Decision making is hierarchical with limited participation and communication. Australia, in contrast, has a power distance rating that is much lower than the world average. The Australian view reinforces cooperative interaction across power levels and stresses equality and opportunity for everyone.Gender EgalitarianismShould you promote men rather than women? Counties with low gender egalitarianism are male dominated. Men hold positions of power to a much greater extent in low-gender-egalitarianism countries like Egypt and South Korea. Companies operating in more gender-egalitarian countries such as the Nordic countries, Germany, and the Netherlands encourage tolerance for diversity of ideas and roles regardless of gender.Institutional CollectivismInstitutional collectivism refers to the extent to which people act predominantly as a member of a lifelong group or organization. Should you reward groups rather than individuals? In countries with high institutional collectivism such as Sweden, the answer is yes. Countries with low institutional collectivism, such as in the United States, emphasize individual achievement and rewards.Humane OrientationShould you reward people for being fair, altruistic, generous, and kind to others? In countries such as Malaysia, this practice is more prevalent and encouraged than in low-humane-orientation countries such as Germany.Future OrientationWill your employees favor activities that involve planning and investing in the future for long-term payoff? Or do they want to see short-term results? Future orientation is defined as one’s expectations and the degree to which one is thoughtful about the future. It is a multifaceted concept that includes planning, realism, and a sense of control. Companies in countries with high future orientation, such as China and Singapore, will have a longer-term planning horizon, and they will be more systematic about planning. Corporations in countries that are the least future-oriented, such as Argentina and Russia, will be more opportunistic and less systematic. At the same time, they’ll be less risk averse.Global Ventures Gone AwryWhen Corning proposed a joint venture with a Mexican glass manufacturer, Vitro, the match seemed made in heaven. But just two years later, the venture was terminated. What happened? Cultural clashes eroded what could have been a lucrative partnership. To start, American managers were continually frustrated with what they perceived to be slow decision making by Mexican managers. Mexico ranks higher on the power distance dimension than the United States—company structures are hierarchical, and decisions are made only by top managers. Loyalty to these managers is a high priority in Mexico, and trying to work around them is a big taboo. Mexicans also have a less urgent approach to time. They see time as more abundant than their U.S. counterparts. As a result, Mexicans thought that Americans wanted to move too fast on decisions, and they perceived American directness in communication as aggressive.Brake, T. (1996). The Global Leader (p. 203). New York: McGraw-Hill. Additional vignettes on managing across borders are shared next.Managing Across BordersLines on the Map Miss the Real StoryDiversity is deeper than variations between countries. Sometimes those differences appear in different regions of the same country. For example, some parts of Mexico don’t use Spanish as the primary language. Wal-Mart’s Mexico’s Juchitan store, therefore, conducts business in the local Zapotec tongue, encourages female employees to wear traditional Zapotec skirts, and does the morning company cheer in Zapotec.Talent AbroadWith so much variation across countries, it’s no surprise that countries vary in level of talent and the supply of managerial, skilled, and unskilled labor. Companies shouldn’t assume that emerging market countries offer inferior labor pools. GM, for instance, found that 50% of its assembly-line workers in India have college degrees—a ratio much higher than in other countries.Local Solutions by People Who Understand Local NeedsNokia uses local designers to create country-specific handset models. The models designed in India for Indians are dust resistant and have a built-in flashlight. The models designed in China for the Chinese have a touch screen, stylus, and Chinese character recognition. Local designers are more likely to understand the needs of the local population than headquarters-located designers do.Strategies in emerging markets conference, held by the MIT Center for Transportation and Logistics (CTL) on March 7, 2007, Cambridge, MA.KEY TAKEAWAYBecause the business environment increasingly depends on collaboration across regional and national borders, a successful global manager needs to be culturally sensitive and have an understanding for how business is done in different cultures. In some countries, loyalty to the group is key. Other countries celebrate mavericks and rule breakers if they can get things done. Knowing how best to communicate with your coworkers and employees—whether to be direct or indirect, whether to follow strict protocol or be more causal, whom to involve in decisions—are all important considerations.EXERCISESYou’ve just been made a manager in Sweden, known for its institutional collectivism. What incentives and reward structures would you use to motivate your employees?How would you prepare workers for an overseas assignment?Your company has 12 branches in the United States and will be opening its first branch in Brazil. Your company prides itself on its self-managed teams. Will you keep this policy in the new country? Why or why not?You’re a manager in Japan, and you’ve just discovered that a team leader under your supervision has made a mistake that will result in a quality problem. How will you handle this mistake?You work in Hong Kong for a Swiss-owned firm. The Swiss are known for their high uncertainty avoidance. What differences might you expect to see from your Swiss bosses compared with your Hong Kong employees?What aspects of P-O-L-C would be most likely to change based on what you have learned in this section?3.6 Developing Your Values-Based Leadership SkillsLEARNING OBJECTIVESWhat ethical challenges do managers likely face?Why are ethics relevant to principles of management?What decision-making framework can you use to help integrate ethics into your own principles of management?Ethical Challenges Managers FaceIt’s late at night and the office is quiet—except that you’ve got a nagging voice in your head. Your product is already two weeks behind schedule. You’ve got to get it out this week or lose the deal. But you’ve discovered a problem. To correct the problem would mean another 3-week delay—and you know the client won’t go for that. It’s a small error—it’ll probably never become an issue. What do you do?Managers face these kinds of issues all the time. Ethical dilemmas can arise from a variety of areas, such as:Advertising (desire to present your product or service in the best light)Sourcing of raw materials (does the company buy from a supplier who may be underpaying their people or damaging the environment?)Privacy (should the company have access to private e-mails that employees write on company time? or the Web sites they visit during work hours?)Safety (employee and community)Pay scales (relation of the pay of top executives to the rest of the company)Product pricing policies (variable pricing, discounts)Communication (with stockholders, announcements of plant closings, etc.)It’s easy to think that people who behave unethically are simply bad apples or have a character flaw. But in fact, it’s often the situation or circumstances that create the ethical pressures. A global study of business ethics, published by the American Management Association, found that the main reasons for a lapse of ethics are:Pressure to meet unrealistic business objectives/deadlines.A desire to further one’s career.A desire to protect one’s livelihood.The Ethical Enterprise: A Global Study of Business Ethics. (2005). New York: American Management Association.You may have developed your own personal code of ethics, but the social environment of the organization can be a barrier to fulfilling that code if management is behaving unethically. At Enron, vice president Sherron Watkins pointed out the accounting misdeeds, but she didn’t take action beyond sending a memo to the company’s chairman. Although she was hailed as a hero and whistleblower, she in fact did not disclose the issue to the public. Similarly, auditors at Arthur Andersen saw the questionable practices that Enron was pursuing, but when the auditors reported these facts to management, Arthur Andersen’s managers pointed to the $100 million of business they were getting from the Enron account. Those managers put profits ahead of ethics. In the end, both companies were ruined, not to mention the countless employees and shareholders left shattered and financially bankrupt.Since 2002, when the Sarbanes-Oxley Act was passed, companies have been required to write a code of ethics. The act sought to reform corporate governance practices in large U.S. public companies. The purpose of the rules is to “define a code of ethics as a codification of standards that is reasonably necessary to deter wrongdoing and to promote honest and ethical conduct,” including the ethical handling of actual or apparent conflicts of interest, compliance with laws, and accountability to adhere to the code.Retrieved January 28, 2009, from http://www.sec.gov/news/press/2002-150.htm. The U.S. financial crisis of late 2008 pointed out that other areas, particularly in the financial services industry, needed stiffer regulations and regulatory scrutiny as well, and those moves will begin to take effect in early 2009. Some companies go a step further and articulate a set of values that drives their code of conduct, as “Procter & Gamble’s Values and Code of Ethics” shows.Procter & Gamble’s Values and Code of EthicsProcter & Gamble Company lives by a set of five values that drive its code of business conduct. These values are:IntegrityWe always try to do the right thing.We are honest and straightforward with each other.We operate within the letter and spirit of the law.We uphold the values and principles of P&G in every action and decision.We are data-based and intellectually honest in advocating proposals, including recognizing risks.Passion for WinningWe are determined to be the best at doing what matters most.We have a healthy dissatisfaction with the status quo.We have a compelling desire to improve and to win in the marketplace.LeadershipWe are all leaders in our area of responsibility, with a deep commitment to delivering leadership results.We have a clear vision of where we are going.We focus our resources to achieve leadership objectives and strategies.We develop the capability to deliver our strategies and eliminate organizational barriers.TrustWe respect our P&G colleagues, customers and consumers, and treat them as we want to be treated.We have confidence in each other’s capabilities and intentions.We believe that people work best when there is a foundation of trust.OwnershipWe accept personal accountability to meet our business needs, improve our systems, and help others improve their effectiveness.We all act like owners, treating the Company’s assets as our own and behaving with the Company’s long-term success in mind.Retrieved January 28, 2009, from http://www.pg.com/company/who_we_are/ppv.jhtml;jsessionid=MCSCEC20KZGJTQFIASJXKZOAVACJG3MK.Importance of Ethics in ManagementEthical behavior among managers is even more important in organizations because leaders set the moral tone of the organization and serve as role models. Ethical leaders build trust in organizations. If employees see leaders behaving unethically, chances are the employees may be less inclined to behave ethically themselves. Companies may have printed codes of ethics, but the key standard is whether leaders uphold those values and standards. We tend to watch leaders for cues on appropriate actions and behavior that the company expects. Decisions that managers make are an indicator of their ethics. If the company says it cares about the safety of employees but then does not buy enough protective gear for them, it is not behaving in line with its code. Likewise, if managers exhibit unsafe behavior or look the other way when employees act unsafely, their behavior is not aligned with their stated code.Without integrity, there can be no trust. Leadership is based on trust. Ethics drive effectiveness because employees know they can do the right thing decisively and with confidence. Ethical behavior earns the trust of customers and suppliers as well. It earns the public’s good will. Ethical managers and ethical businesses tend to be more trusted and better treated. They suffer less resentment, inefficiency, litigation, and government interference. If top management cuts corners, however, or if they make shady decisions, then no matter how good the code of ethics sounds, people will emulate the questionable behavior, not the code.As a manager, you can make it clear to employees that you expect them to conduct business in an ethical manner by offering seminars on ethics, having an ethics hotline via which employees can anonymously raise issues, and having an ombudsman office or ethics committee to investigate issues.Integrating Ethics into Managerial Decision MakingEthics implies making a choice between decision-making rules. For instance, when choosing between two suppliers, do you choose the cheapest (decision rule 1) or the highest quality (decision rule 2). Ethics also implies deciding on a course of action when no clear decision rule is available. Dilemmas occur when the choices are incompatible and when one course of action seems to better serve your self-interest but appears to violate a moral principle. One way to tackle ethical dilemmas is to follow an ethical decision-making process, like the one described below.Steps in an Ethical Decision-Making ProcessAssess the situation: What are you being asked to do? Is it illegal? Is it unethical? Who might be harmed?Identify the stakeholders and consider the situation from their point of view. For example, consider the point of view of the company’s employees, top management, stockholders, customers, suppliers, and community.Consider the alternatives you have available to you and how they affect the stakeholders:consequencesduties, rights, and principlesimplications for personal integrity and characterHow does the action make you feel about yourself? How would you feel if your actions were reported tomorrow in the Wall Street Journal (or your daily newspaper)? How would you explain your actions to your mother or to your 10-year-old child?Make a decision. This might involve going to your boss or to a neutral third party (such as an ombudsman or ethics committee). Know your values and your limits. If the company does nothing to rectify the situation, do you want to continue working for the company?Monitor outcomes. How did the decision work out? How did it turn out for all concerned? If you had it to do over again, what would you do differently?Hartman, L., and DesJardins, J. (2008). Business Ethics: Decision-Making for Personal Integrity and Social Responsibility. New York: McGraw-Hill.If you see unethical behavior in others, confronting it early is better. Early on, you have more of an opportunity to talk with the person in a fact-finding (rather than an accusatory) way. The discussion may nip the problem in the bud and prevent it from escalating. Keeping silent because you want to avoid offending the person may lead to much greater problems later on. As French playwright Jean-Baptiste Moliere wrote, “It’s not only for what we do that we are held responsible, but for what we do not do.”KEY TAKEAWAYManagement involves decision making, and decisions often have an ethical component. Beyond personal ethics or a moral code, managers face making decisions that reflect the company as a whole, affecting its future success and vitality. Ethics doesn’t just mean following the law but acting in accordance with basic values.EXERCISESWhat are the consequences of unethical behavior?If you were writing a code of ethics for your company, what would you include?In times of economic downturn, is ethical behavior a luxury?How would you handle an ethical violation committed by one of your employees?Nobel laureate economist Milton Friedman said that companies should focus on maximizing profits, not social responsibilities or purposes. Do you agree with this view? Why or why not?What aspects of P-O-L-C would be most likely to change based on what you have learned in this section?

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Published - Fri, 10 Mar 2023

Personality, Attitudes, and Work Behaviors - Principles of Management - Chapter 2

Created by - Jenny Clarke

Personality, Attitudes, and Work Behaviors - Principles of Management - Chapter 2

WHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Understand the roles of personality and values in determining work behaviors.Explain the process of perception and how it affects work behaviors.Identify the major work attitudes that affect work behaviors.Define the concept of person-organization fit and how it affects work behaviors.List the key set of behaviors that matter for organizational performance.Be able to develop your positive attitude skills.Figure 2.2 The P-O-L-C FrameworkIndividuals bring a number of differences to work. They have a variety of personalities, values, and attitudes. When they enter into organizations, their stable or transient characteristics affect how they behave and perform. Moreover, companies hire people with the expectation that they have certain knowledge, skills, abilities, personalities, and values.Recall that you are learning about the principles of management through the planning-organizing-leading-controlling (P-O-L-C) framework. Employees’ personalities, attitudes, and work behaviors affect how managers approach each P-O-L-C dimension. Here are just a few examples:When conducting environmental scanning during the planning process, a manager’s perceptions color the information that is absorbed and processed.Employee preferences for job design and enrichment (aspects of organizing) may be a function of individuals’ personalities and values.Leading effectively requires an understanding of employees’ personalities, values, and attitudes.Absenteeism can challenge a manager’s ability to control costs and performance (both at the group and individual levels).Therefore, it is important for managers to understand the individual characteristics that matter for employee and manager behaviors.2.1 Case in Point: SAS Institute Invests in EmployeesWho are your best customers? Which customers are bringing you the most profits and which are the least profitable? Companies are increasingly relying on complicated data mining software to answer these and other questions. More than 92% of the top 100 companies on the Fortune Global 500 list are using software developed by SAS Institute Inc., the world’s largest privately held software company, for their business intelligence and analytical needs. The Cary, North Carolina, company is doing extremely well by any measure. They have over 10,000 employees worldwide, operate in over 100 countries, ranked number 1 on Fortune’s 2010 list of the “Best Companies to Work For,” and reported $2.31 billion in revenue in 2009 (their 33rd consecutive year of growth and profitability). They reinvested 23% of their 2009 revenue into research and development (R&D) activities. The company is quick to attribute their success to the performance and loyalty of their workforce. This is directly correlated with how they treat their employees.SAS has perfected the art of employee management. It has been ranked on Fortune magazine’s best places to work list every year since the list was first published. Employees seem to genuinely enjoy working at SAS and are unusually attached to the company, resulting in a turnover rate that is less than 4% in an industry where 20% is the norm. In fact, when Google designed their own legendary campus in California, they visited the SAS campus to get ideas.One thing SAS does well is giving its employees opportunities to work on interesting and challenging projects. The software developers have the opportunity to develop cutting-edge software to be used around the world. The company makes an effort to concentrate its business in the areas of analytics, which add the most value and help organizations best analyze disparate data for decision making, creating opportunities for SAS workers to be challenged. Plus, the company removes obstacles for employees. Equipment, policies, rules, and meetings that could impede productivity are eliminated.SAS has treated employees well in bad times as well as in good times. CEO Jim Goodnight is quoted as saying, “For 2010, I make the same promise that I did last year—SAS will have no layoffs. Too many companies worldwide sacrificed employees and benefits to cut costs in 2009. SAS took the opposite stance, and we have been rewarded in employee loyalty and overall success of the business. Maintaining this position throughout the downturn puts us in the best position to meet the expected market upturn.”In addition, the company has a reputation as a pioneer when it comes to the perks it offers employees, but these perks are not given with a mentality of “offer everything but the kitchen sink.” There is careful thinking and planning behind the choice of perks the company offers. SAS conducts regular employee satisfaction surveys, and any future benefits and perks offered are planned in response to the results. The company wants to eliminate stressors and anything that dissatisfies from people’s lives. To keep employees healthy and fit, there are athletic fields; a full gym; a swimming pool; and tennis, basketball, and racquetball courts on campus. Plus, the company offers free on-site health care for employees, covers dependents at their fully staffed primary medical care center, and offers unlimited sick leave. The company understands that employees have a life and encourages employees to work reasonable hours and then go home to their families. In fact, a famous motto in the company is, “If you are working for more than 8 hours, you are just adding bugs.” SAS is truly one of the industry leaders in leveraging its treatment of people for continued business success.Case written by [citation redacted per publisher request]. Based on information from Doing well by being rather nice. (2007, December 1). Economist. Retrieved April 30, 2010, from http://www.financialexpress.com/news/doing-well-by-being-rather-nice/247090; Cakebread, C. (2005, July). SAS…not SOS. Benefits Canada, 29(7), 18; Florida, R., & Goodnight, J. (2005, July–August). Managing for creativity. Harvard Business Review, 83(7/8), 124–131; Karlgaard, R. (2006, October 16). Who wants to be public? Forbes Asia, 2(17), 22; SAS ranks No. 1 on Fortune “Best Companies to Work For” list in America. (2010, January 21). SAS press release. Retrieved May 27, 2010, from http://www.sas.com/news/preleases/2010fortuneranking.html.DISCUSSION QUESTIONSHow would you translate SAS’s art of employee management in terms of the P-O-L-C framework?SAS is a global company. Do you think that the benefits offered and the strategy used to improve employee satisfaction vary from country to country?If a company is unable to provide the benefits that SAS does, in what other ways might a firm create positive work attitudes?What risks could be associated with giving workplace surveys, as was done at SAS?What are some effective strategies to create a balanced work and home life? Is this more or less of a challenge when you are starting a new career?2.2 Personality and ValuesLEARNING OBJECTIVESIdentify the major personality traits that are relevant to organizational behavior.Explain the potential pitfalls of personality testing.Describe the relationship between personality and work behaviors.Understand what values are.Describe the link between values and work behaviors.PersonalityPersonality encompasses a person’s relatively stable feelings, thoughts, and behavioral patterns. Each of us has a unique personality that differentiates us from other people, and understanding someone’s personality gives us clues about how that person is likely to act and feel in a variety of situations. To manage effectively, it is helpful to understand the personalities of different employees. Having this knowledge is also useful for placing people into jobs and organizations.If personality is stable, does this mean that it does not change? You probably remember how you have changed and evolved as a result of your own life experiences, parenting style and attention you have received in early childhood, successes and failures you experienced over the course of your life, and other life events. In fact, personality does change over long periods of time. For example, we tend to become more socially dominant, more conscientious (organized and dependable), and more emotionally stable between the ages of 20 and 40, whereas openness to new experiences tends to decline as we age.Roberts, B. W., Walton, K. E., & Viechtbauer, W. (2006). Patterns of mean-level change in personality traits across the life course: A meta-analysis of longitudinal studies. Psychological Bulletin, 132, 1–25. In other words, even though we treat personality as relatively stable, change occurs. Moreover, even in childhood, our personality matters, and it has lasting consequences for us. For example, studies show that part of our career success and job satisfaction later in life can be explained by our childhood personality.Judge, T. A., & Higgins, C. A. (1999). The big five personality traits, general mental ability, and career success across the life span. Personnel Psychology, 52, 621–652; Staw, B. M., Bell, N. E., & Clausen, J. A. (1986). The dispositional approach to job attitudes: A lifetime longitudinal test. Administrative Science Quarterly, 31, 56–77.Is our behavior in organizations dependent on our personality? To some extent, yes, and to some extent, no. While we will discuss the effects of personality for employee behavior, you must remember that the relationships we describe are modest correlations. For example, having a sociable and outgoing personality may encourage people to seek friends and prefer social situations. This does not mean that their personality will immediately affect their work behavior. At work, we have a job to do and a role to perform. Therefore, our behavior may be more strongly affected by what is expected of us, as opposed to how we want to behave. Especially in jobs that involve a lot of autonomy, or freedom, personality tends to exert a strong influence on work behavior,Barrick, M. R., & Mount, M. K. (1993). Autonomy as a moderator of the relationships between the big five personality dimensions and job performance. Journal of Applied Psychology, 78, 111–118.something to consider when engaging in Organizing activities such as job design or enrichment.Big Five Personality TraitsHow many personality traits are there? How do we even know? In every language, there are many words describing a person’s personality. In fact, in the English language, more than 15,000 words describing personality have been identified. When researchers analyzed the traits describing personality characteristics, they realized that many different words were actually pointing to a single dimension of personality. When these words were grouped, five dimensions seemed to emerge, and these explain much of the variation in our personalities.Goldberg, L. R. (1990). An alternative “description of personality”: The big-five factor structure. Journal of Personality & Social Psychology, 59, 1216–1229. These five are not necessarily the only traits out there. There are other, specific traits that represent other dimensions not captured by the Big Five. Still, understanding them gives us a good start for describing personality.Figure 2.5 The Big Five Personality TraitsSource: Goldberg, L. R. (1990). An alternative “description of personality”: The big-five factor structure. Journal of Personality & Social Psychology, 59, 1216–1229.As you can see, the Big Five dimensions are openness, conscientiousness, extraversion, agreeableness, and Neuroticism—if you put the initials together, you get the acronym OCEAN. Everyone has some degree of each of these traits; it is the unique configuration of how high a person rates on some traits and how low on others that produces the individual quality we call personality.Openness is the degree to which a person is curious, original, intellectual, creative, and open to new ideas. People high in openness seem to thrive in situations that require flexibility and learning new things. They are highly motivated to learn new skills, and they do well in training settings.Barrick, M. R., & Mount, M. K. (1991). The big five personality dimensions and job performance: A meta-analysis. Personnel Psychology, 44, 1–26; Lievens, F., Harris, M. M., Van Keer, E., & Bisqueret, C. (2003). Predicting cross-cultural training performance: The validity of personality, cognitive ability, and dimensions measured by an assessment center and a behavior description interview. Journal of Applied Psychology, 88, 476–489. They also have an advantage when they enter into a new organization. Their open-mindedness leads them to seek a lot of information and feedback about how they are doing and to build relationships, which leads to quicker adjustment to the new job.Wanberg, C. R., & Kammeyer-Mueller, J. D. (2000). Predictors and outcomes of proactivity in the socialization process. Journal of Applied Psychology, 85, 373–385. When given support, they tend to be creative.Baer, M., & Oldham, G. R. (2006). The curvilinear relation between experienced creative time pressure and creativity: Moderating effects of openness to experience and support for creativity. Journal of Applied Psychology, 91, 963–970. Open people are highly adaptable to change, and teams that experience unforeseen changes in their tasks do well if they are populated with people high in openness.LePine, J. A. (2003). Team adaptation and postchange performance: Effects of team composition in terms of members’ cognitive ability and personality. Journal of Applied Psychology, 88, 27–39. Compared with people low in openness, they are also more likely to start their own business.Zhao, H., & Seibert, S. E. (2006). The big five personality dimensions and entrepreneurial status: A meta-analytic review. Journal of Applied Psychology, 91, 259–271. The potential downside is that they may also be prone to becoming more easily bored or impatient with routine.Conscientiousness refers to the degree to which a person is organized, systematic, punctual, achievement-oriented, and dependable. Conscientiousness is the one personality trait that uniformly predicts how high a person’s performance will be across a variety of occupations and jobs.Barrick, M. R., & Mount, M. K. (1991). The big five personality dimensions and job performance: A meta-analysis. Personnel Psychology, 44, 1–26. In fact, conscientiousness is the trait most desired by recruiters, and highly conscientious applicants tend to succeed in interviews.Dunn, W. S., Mount, M. K., Barrick, M. R., & Ones, D. S. (1995). Relative importance of personality and general mental ability in managers’ judgments of applicant qualifications. Journal of Applied Psychology, 80, 500–509; Tay, C., Ang, S., & Van Dyne, L. (2006). Personality, biographical characteristics, and job interview success: A longitudinal study of the mediating effects of interviewing self-efficacy and the moderating effects of internal locus of control. Journal of Applied Psychology, 91, 446–454. Once they are hired, conscientious people not only tend to perform well, but they also have higher levels of motivation to perform, lower levels of turnover, lower levels of absenteeism, and higher levels of safety performance at work.Judge, T. A., & Ilies, R. (2002). Relationship of personality to performance motivation: A meta-analytic review. Journal of Applied Psychology, 87, 797–807; Judge, T. A., Martocchio, J. J, & Thoresen, C. J. (1997). Five-factor model of personality and employee absence. Journal of Applied Psychology, 82, 745–755; Wallace, C., & Chen, G. (2006). A multilevel integration of personality, climate, self-regulation, and performance. Personnel Psychology, 59, 529–557; Zimmerman, R. D. (2008). Understanding the impact of personality traits on individuals’ turnover decisions: A meta-analytic path model. Personnel Psychology, 61, 309–348. One’s conscientiousness is related to career success and career satisfaction over time.Judge, T. A., & Higgins, C. A. (1999). The big five personality traits, general mental ability, and career success across the life span. Personnel Psychology, 52, 621–652. Finally, it seems that conscientiousness is a valuable trait for entrepreneurs. Highly conscientious people are more likely to start their own business compared with those who are not conscientious, and their firms have longer survival rates.Certo, S. T., & Certo, S. C. (2005). Spotlight on entrepreneurship. Business Horizons, 48, 271–274; Zhao, H., & Seibert, S. E. (2006). The big five personality dimensions and entrepreneurial status: A meta-analytic review. Journal of Applied Psychology, 91, 259–271. A potential downside is that highly conscientious individuals can be detail-oriented rather than seeing the big picture.Extraversion is the degree to which a person is outgoing, talkative, sociable, and enjoys socializing. One of the established findings is that they tend to be effective in jobs involving sales.Barrick, M. R., & Mount, M. K. (1991). The big five personality dimensions and job performance: A meta-analysis. Personnel Psychology, 44, 1–26; Vinchur, A. J., Schippmann, J. S., Switzer, F. S., & Roth, P. L. (1998). A meta-analytic review of predictors of job performance for salespeople. Journal of Applied Psychology, 83, 586–597. Moreover, they tend to be effective as managers and they demonstrate inspirational leadership behaviors.Bauer, T. N., Erdogan, B., Liden, R. C., & Wayne, S. J. (2006). A longitudinal study of the moderating role of extraversion: Leader-member exchange, performance, and turnover during new executive development. Journal of Applied Psychology, 91, 298–310; Bono, J. E., & Judge, T. A. (2004). Personality and transformational and transactional leadership: A meta-analysis. Journal of Applied Psychology, 89, 901–910. extraverts do well in social situations, and, as a result, they tend to be effective in job interviews. Part of this success comes from preparation, as they are likely to use their social network to prepare for the interview.Caldwell, D. F., & Burger, J. M. (1998). Personality characteristics of job applicants and success in screening interviews. Personnel Psychology, 51, 119–136; Tay, C., Ang, S., & Van Dyne, L. (2006). Personality, biographical characteristics, and job interview success: A longitudinal study of the mediating effects of interviewing self-efficacy and the moderating effects of internal locus of control. Journal of Applied Psychology, 91, 446–454. extraverts have an easier time than introverts do when adjusting to a new job. They actively seek information and feedback and build effective relationships, which helps them adjust.Wanberg, C. R., & Kammeyer-Mueller, J. D. (2000). Predictors and outcomes of proactivity in the socialization process. Journal of Applied Psychology, 85, 373–385. Interestingly, extraverts are also found to be happier at work, which may be because of the relationships they build with the people around them and their easier adjustment to a new job.Judge, T. A. Heller, D., & Mount, M. K. (2002). Five-factor model of personality and job satisfaction: A meta-analysis. Journal of Applied Psychology, 87, 530–541. However, they do not necessarily perform well in all jobs; jobs depriving them of social interaction may be a poor fit. Moreover, they are not necessarily model employees. For example, they tend to have higher levels of absenteeism at work, potentially because they may miss work to hang out with or attend to the needs of their friends.Judge, T. A., Martocchio, J. J., & Thoresen, C. J. (1997). Five-factor model of personality and employee absence. Journal of Applied Psychology, 82, 745–755.Agreeableness is the degree to which a person is affable, tolerant, sensitive, trusting, kind, and warm. In other words, people who are high in agreeableness are likeable people who get along with others. Not surprisingly, agreeable people help others at work consistently; this helping behavior does not depend on their good mood.Ilies, R., Scott, B. A., & Judge, T. A. (2006). The interactive effects of personal traits and experienced states on intraindividual patterns of citizenship behavior. Academy of Management Journal, 49, 561–575. They are also less likely to retaliate when other people treat them unfairly.Skarlicki, D. P., Folger, R., & Tesluk, P. (1999). Personality as a moderator in the relationship between fairness and retaliation. Academy of Management Journal, 42, 100–108. This may reflect their ability to show empathy and to give people the benefit of the doubt. Agreeable people may be a valuable addition to their teams and may be effective leaders because they create a fair environment when they are in leadership positions.Mayer, D., Nishii, L., Schneider, B., & Goldstein, H. (2007). The precursors and products of justice climates: Group leader antecedents and employee attitudinal consequences. Personnel Psychology, 60, 929–963. At the other end of the spectrum, people low in agreeableness are less likely to show these positive behaviors. Moreover, people who are disagreeable are shown to quit their jobs unexpectedly, perhaps in response to a conflict with a boss or a peer.Zimmerman, R. D. (2008). Understanding the impact of personality traits on individuals’ turnover decisions: A meta-analytic path model. Personnel Psychology, 61, 309–348. If agreeable people are so nice, does this mean that we should only look for agreeable people when hiring? You might expect some jobs to require a low level of agreeableness. Think about it: When hiring a lawyer, would you prefer a kind and gentle person or someone who can stand up to an opponent? People high in agreeableness are also less likely to engage in constructive and change-oriented communication.LePine, J. A., & Van Dyne, L. (2001). Voice and cooperative behavior as contrasting forms of contextual performance: Evidence of differential relationships with big five personality characteristics and cognitive ability. Journal of Applied Psychology, 86, 326–336. Disagreeing with the status quo may create conflict, and agreeable people may avoid creating such conflict, missing an opportunity for constructive change.Neuroticism refers to the degree to which a person is anxious, irritable, temperamental, and moody. It is perhaps the only Big Five dimension where scoring high is undesirable. Neurotic people have a tendency to have emotional adjustment problems and habitually experience stress and depression. People very high in Neuroticism experience a number of problems at work. For example, they have trouble forming and maintaining relationships and are less likely to be someone people go to for advice and friendship.Klein, K. J., Beng-Chong, L., Saltz, J. L., & Mayer, D. M. (2004). How do they get there? An examination of the antecedents of centrality in team networks. Academy of Management Journal, 47, 952–963. They tend to be habitually unhappy in their jobs and report high intentions to leave, but they do not necessarily actually leave their jobs.Judge, T. A., Heller, D., & Mount, M. K. (2002). Five-factor model of personality and job satisfaction: A meta-analysis. Journal of Applied Psychology, 87, 530–541; Zimmerman, R. D. (2008). Understanding the impact of personality traits on individuals’ turnover decisions: A meta-analytic path model. Personnel Psychology, 61, 309–348. Being high in Neuroticism seems to be harmful to one’s career, as these employees have lower levels of career success (measured with income and occupational status achieved in one’s career). Finally, if they achieve managerial jobs, they tend to create an unfair climate at work.Mayer, D., Nishii, L., Schneider, B., & Goldstein, H. (2007). The precursors and products of justice climates: Group leader antecedents and employee attitudinal consequences. Personnel Psychology, 60, 929–963.In contrast, people who are low on Neuroticism—those who have a positive affective disposition—tend to experience positive moods more often than negative moods. They tend to be more satisfied with their jobs and more committed to their companies.Connolly, J. J., & Viswesvaran, C. (2000). The role of affectivity in job satisfaction: A meta-analysis. Personality and Individual Differences, 29, 265–281; Thoresen, C. J., Kaplan, S. A., Barsky, A. P., de Chermont, K., & Warren, C. R. (2003). The affective underpinnings of job perceptions and attitudes: A meta-analytic review and integration. Psychological Bulletin, 129, 914–945. This is not surprising, as people who habitually see the glass as half full will notice the good things in their work environment while those with the opposite character will find more things to complain about. Whether these people are more successful in finding jobs and companies that will make them happy, build better relationships at work that increase their satisfaction and commitment, or simply see their environment as more positive, it seems that low Neuroticism is a strong advantage in the workplace.Evaluate Yourself on the Big Five Personality FactorsGo to http://www.outofservice.com/bigfive to see how you score on these factors.Other Personality DimensionsIn addition to the Big Five, researchers have proposed various other dimensions, or traits, of personality. These include self-monitoring, proactive personality, self-esteem, and self-efficacy.Self-monitoring refers to the extent to which a person is capable of monitoring his or her actions and appearance in social situations. People who are social monitors are social chameleons who understand what the situation demands and act accordingly, while low social monitors tend to act the way they feel.Snyder, M. (1974). Self-monitoring of expressive behavior. Journal of Personality and Social Psychology, 30, 526–537; Snyder, M. (1987). Public Appearances/Public Realities: The Psychology of Self-Monitoring. New York: Freeman. High social monitors are sensitive to the types of behaviors the social environment expects from them. Their ability to modify their behavior according to the demands of the situation they are in and to manage their impressions effectively are great advantages for them.Turnley, W. H., & Bolino, M. C. (2001). Achieving desired images while avoiding undesired images: Exploring the role of self-monitoring in impression management. Journal of Applied Psychology, 86, 351–360. They are rated as higher performers and emerge as leaders.Day, D. V., Schleicher, D. J., Unckless, A. L., & Hiller, N. J. (2002). Self-monitoring personality at work: A meta-analytic investigation of construct validity. Journal of Applied Psychology, 87, 390–401. They are effective in influencing other people and are able to get things done by managing their impressions. As managers, however, they tend to have lower accuracy in evaluating the performance of their employees. It seems that while trying to manage their impressions, they may avoid giving accurate feedback to their subordinates to avoid confrontations, which could hinder a manager’s ability to carry out the Controlling function.Jawahar, I. M. (2001). Attitudes, self-monitoring, and appraisal behaviors. Journal of Applied Psychology, 86, 875–883.Proactive personality refers to a person’s inclination to fix what is wrong, change things, and use initiative to solve problems. Instead of waiting to be told what to do, proactive people take action to initiate meaningful change and remove the obstacles they face along the way. Proactive individuals tend to be more successful in their job searches.Brown, D. J., Cober, R. T., Kane, K., Levy, P. E., & Shalhoop, J. (2006). Proactive personality and the successful job search: A field investigation with college graduates. Journal of Applied Psychology, 91, 717–726. They also are more successful over the course of their careers because they use initiative and acquire greater understanding of how the politics within the company work.Seibert, S. E. (1999). Proactive personality and career success. Journal of Applied Psychology, 84, 416–427; Seibert, S. E., Kraimer, M. L., & Crant, M. J. (2001). What do proactive people do? A longitudinal model linking proactive personality and career success. Personnel Psychology, 54, 845–874. Proactive people are valuable assets to their companies because they may have higher levels of performance.Crant, M. J. (1995). The proactive personality scale and objective job performance among real estate agents. Journal of Applied Psychology, 80, 532–537. They adjust to their new jobs quickly because they understand the political environment better and make friends more quickly.Kammeyer-Mueller, J. D., & Wanberg, C. R. (2003). Unwrapping the organizational entry process: Disentangling multiple antecedents and their pathways to adjustment. Journal of Applied Psychology, 88, 779–794; Thompson, J. A. (2005). Proactive personality and job performance: A social capital perspective. Journal of Applied Psychology, 90, 1011–1017. Proactive people are eager to learn and engage in many developmental activities to improve their skills.Major, D. A., Turner, J. E., & Fletcher, T. D. (2006). Linking proactive personality and the big five to motivation to learn and development activity. Journal of Applied Psychology, 91, 927–935. For all their potential, under some circumstances proactive personality may be a liability for a person or an organization. Imagine a person who is proactive but is perceived as too pushy, trying to change things other people are not willing to let go of, or using their initiative to make decisions that do not serve a company’s best interests. Research shows that a proactive person’s success depends on his or her understanding of the company’s core values, ability, and skills to perform the job and ability to assess situational demands correctly.Chan, D. (2006). Interactive effects of situational judgment effectiveness and proactive personality on work perceptions and work outcomes. Journal of Applied Psychology, 91, 475–481; Erdogan, B., & Bauer, T. N. (2005). Enhancing career benefits of employee proactive personality: The role of fit with jobs and organizations. Personnel Psychology, 58, 859–891.Self-esteem is the degree to which a person has overall positive feelings about himself or herself. People with high self-esteem view themselves in a positive light, are confident, and respect themselves. In contrast, people with low self-esteem experience high levels of self-doubt and question their self-worth. High self-esteem is related to higher levels of satisfaction with one’s job and higher levels of performance on the job.Judge, T. A., & Bono, J. E. (2001). Relationship of core self-evaluations traits—self esteem, generalized self efficacy, locus of control, and emotional stability—with job satisfaction and job performance: A meta-analysis. Journal of Applied Psychology, 86, 80–92. People with low self-esteem are attracted to situations where they will be relatively invisible, such as large companies.Turban, D. B., & Keon, T. L. (1993). Organizational attractiveness: An interactionist perspective. Journal of Applied Psychology, 78, 184–193. Managing employees with low self-esteem may be challenging at times because negative feedback given with the intention of improving performance may be viewed as a negative judgment on their worth as an employee. Therefore, effectively managing employees with relatively low self-esteem requires tact and providing lots of positive feedback when discussing performance incidents.Self-Esteem Around the GlobeWhich nations have the highest average self-esteem? Researchers asked this question by surveying almost 17,000 individuals across 53 nations, in 28 languages.On the basis of this survey, these are the top 10 nations in terms of self-reported self-esteem:SerbiaChileIsraelPeruEstoniaUnited States of AmericaTurkeyMexicoCroatiaAustriaThe following are the 10 nations with the lowest self-reported self-esteem:South KoreaSwitzerlandMoroccoSlovakiaFijiTaiwanCzech RepublicBangladeshHong KongJapanSource: Adapted from information in Denissen, J. J. A., Penke, L., & Schmitt, D. P. (2008, July). Self-esteem reactions to social interactions: Evidence for sociometer mechanisms across days, people, and nations. Journal of Personality & Social Psychology, 95, 181–196; Hitti, M. (2005). Who’s No. 1 in self-esteem? Serbia is tops, Japan ranks lowest, U.S. is no. 6 in global survey. WebMD. Retrieved November 14, 2008, from http://www.webmd.com/skin-beauty/news/20050927/whos-number-1-in-self-esteem; Schmitt, D. P., & Allik, J. (2005). The simultaneous administration of the Rosenberg self-esteem scale in 53 nationals: Culture-specific features of global self-esteem. Journal of Personality and Social Psychology, 89, 623–642.Self-efficacy is a belief that one can perform a specific task successfully. Research shows that the belief that we can do something is a good predictor of whether we can actually do it. Self-efficacy is different from other personality traits in that it is job specific. You may have high self-efficacy in being successful academically, but low self-efficacy in relation to your ability to fix your car. At the same time, people have a certain level of generalized self-efficacy, and they have the belief that whatever task or hobby they tackle, they are likely to be successful in it.Research shows that self-efficacy at work is related to job performance.Bauer, T. N., Bodner, T., Erdogan, B., Truxillo, D. M., & Tucker, J. S. (2007). Newcomer adjustment during organizational socialization: A meta-analytic review of antecedents, outcomes, and methods. Journal of Applied Psychology, 92, 707–721; Judge, T. A., Jackson, C. L., Shaw, J. C., Scott, B. A., & Rich, B. L. (2007). Self-efficacy and work-related performance: The integral role of individual differences. Journal of Applied Psychology, 92, 107–127; Stajkovic, A. D., & Luthans, F. (1998). Self-efficacy and work-related performance: A meta-analysis. Psychological Bulletin, 124, 240–261. This is probably because people with high self-efficacy actually set higher goals for themselves and are more committed to their goals, whereas people with low self-efficacy tend to procrastinate.Phillips, J. M., & Gully, S. M. (1997). Role of goal orientation, ability, need for achievement, and locus of control in the self-efficacy and goal-setting process. Journal of Applied Psychology, 82, 792–802; Steel, P. (2007). The nature of procrastination: A meta-analytic and theoretical review of quintessential self-regulatory failure. Psychological Bulletin, 133, 65–94; Wofford, J. C., Goodwin, V. L., & Premack, S. (1992). Meta-analysis of the antecedents of personal goal level and of the antecedents and consequences of goal commitment. Journal of Management, 18, 595–615. Academic self-efficacy is a good predictor of your grade point average, as well as whether you persist in your studies or drop out of college.Robbins, S. B., Lauver, K., Le, H., Davis, D., Langley, R., & Carlstrom, A. (2004). Do psychosocial and study skill factors predict college outcomes? A meta-analysis. Psychological Bulletin, 130, 261–288.Is there a way of increasing employee’s self-efficacy? In addition to hiring people who are capable of performing the required job tasks, training people to increase their self-efficacy may be effective. Some people may also respond well to verbal encouragement. By showing that you believe they can be successful and effectively playing the role of cheerleader, a manager may be able to increase self-efficacy beliefs. Empowering people—giving them opportunities to test their skills so that they can see what they are capable of—is also a good way of increasing self-efficacy.Ahearne, M., Mathieu, J., & Rapp, A. (2005). To empower or not to empower your sales force? An empirical examination of the influence of leadership empowerment behavior on customer satisfaction and performance. Journal of Applied Psychology, 90, 945–955.Personality Testing in Employee SelectionPersonality is a potentially important predictor of work behavior. In job interviews, companies try to assess a candidate’s personality and the potential for a good match, but interviews are only as good as the people conducting them. In fact, interviewers are not particularly good at detecting the best trait that predicts performance: conscientiousness.Barrick, M. R., Patton, G. K., & Haugland, S. N. (2000). Accuracy of interviewer judgments of job applicant personality traits. Personnel Psychology, 53, 925–951.One method some companies use to improve this match and detect the people who are potentially good job candidates is personality testing. Several companies conduct preemployment personality tests. Companies using them believe that these tests improve the effectiveness of their selection and reduce turnover. For example, Overnight Transportation in Atlanta found that using such tests reduced their on-the-job delinquency by 50%–100%.Emmett, A. (2004, October). Snake oil or science? That’s the raging debate on personality testing. Workforce Management, 83, 90–92; Gale, S. F. (2002, April). Three companies cut turnover with tests. Workforce, 81 (4), 66–69.Figure 2.7Companies such as Kronos and Hogan Assessments conduct preemployment personality tests. Kronos Incorporated Headquarters is located in Chelmsford, Massachusetts.Source: http://en.wikipedia.org/wiki/Image:Kronos-incorporated.jpgYet, are these methods good ways of employee selection? Experts have not yet reached an agreement on this subject and the topic is highly controversial. Some experts cite data indicating that personality tests predict performance and other important criteria such as job satisfaction. However, we must understand that how a personality test is used influences its validity. Imagine filling out a personality test in class. You will probably fill it out as honestly as you can. Then, if your instructor correlates your personality scores with your class performance, we could say that the correlation is meaningful. But now imagine that your instructor tells you, before giving you the test, that based on your test scores, you will secure a coveted graduate assistant position, which comes with a tuition waiver and a stipend. In that case, would you still fill out the test honestly or would you try to make your personality look as “good” as possible?In employee selection, where the employees with the “best” personalities will be the ones receiving a job offer, a complicating factor is that people filling out the survey do not have a strong incentive to be honest. In fact, they have a greater incentive to guess what the job requires and answer the questions in a way they think the company is looking for. As a result, the rankings of the candidates who take the test may be affected by their ability to fake. Some experts believe that this is a serious problem.Morgeson, F. P., Campion, M. A., Dipboye, R. L., Hollenbeck, J. R., Murphy, K., & Schmitt, N. (2007). Reconsidering the use of personality tests in personnel selection contexts. Personnel Psychology, 60, 683–729; Morgeson, F. P., Campion, M. A., Dipboye, R. L., Hollenbeck, J. R., Murphy, K., & Schmitt, N. (2007). Are we getting fooled again? Coming to terms with limitations in the use of personality tests for personnel selection. Personnel Psychology, 60, 1029–1049. Others point out that even with faking the tests remain valid—the scores are related to job performance.Barrick, M. R., & Mount, M. K. (1996). Effects of impression management and self-deception on the predictive validity of personality constructs. Journal of Applied Psychology, 81, 261–272; Ones, D. S., Dilchert, S., Viswesvaran, C., & Judge, T. A. (2007). In support of personality assessment in organizational settings. Personnel Psychology, 60, 995–1027; Ones, D. S., Viswesvaran, C., & Reiss, A. D. (1996). Role of social desirability in personality testing for personnel selection. Journal of Applied Psychology, 81, 660–679; Tett, R. P., & Christiansen, N. D. (2007). Personality tests at the crossroads: A response to Morgeson, Campion, Dipboye, Hollenbeck, Murphy, and Schmitt (2007). Personnel Psychology, 60, 967–993. It is even possible that the ability to fake is related to a personality trait that increases success at work, such as social monitoring.Scores on personality self-assessments are distorted for other reasons beyond the fact that some candidates can fake better than others. Do we even know our own personalities? Are we the best person to ask this question? How supervisors, coworkers, and customers see our personality may matter more than how we see ourselves. Therefore, using self-report measures of performance may not be the best way of measuring someone’s personality.Mount, M. K., Barrick, M. R., & Strauss, J. P. (1994). Validity of observer ratings of the big five personality factors. Journal of Applied Psychology, 79, 272–280. We have our blind areas. We may also give “aspirational” answers. If you are asked whether you are honest, you may think “yes, I always have the intention to be honest.” This actually says nothing about your actual level of honesty.Another problem with using these tests is the uncertain relationship between performance and personality. On the basis of research, personality is not a particularly strong indicator of how a person will perform. According to one estimate, personality only explains about 10%–15% of variation in job performance. Our performance at work depends on many factors, and personality does not seem to be the key factor for performance. In fact, cognitive ability (your overall mental intelligence) is a more powerful predictor of job performance. Instead of personality tests, cognitive ability tests may do a better job of predicting who will be good performers. Personality is a better predictor of job satisfaction and other attitudes, but screening people out on the assumption that they may be unhappy at work is a challenging argument to make in an employee selection context.In any case, if an organization decides to use these tests for selection, it is important to be aware of their limitations. If they are used together with other tests, such as tests of cognitive abilities, they may contribute to making better decisions. The company should ensure that the test fits the job and actually predicts performance. This is called validating the test. Before giving the test to applicants, the company could give it to existing employees to find out the traits that are most important for success in this particular company and job. Then, in the selection context, the company can pay particular attention to those traits.Finally, the company also needs to make sure that the test does not discriminate against people on the basis of sex, race, age, disabilities, and other legally protected characteristics. Rent-a-Center experienced legal difficulties when the test they used was found to violate the Americans with Disabilities Act (ADA). The company used the Minnesota Multiphasic Personality Inventory for selection purposes, but this test was developed to diagnose severe mental illnesses; it included items such as “I see things or people around me others do not see.” In effect, the test served the purpose of a clinical evaluation and was discriminating against people with mental illnesses, which is a protected category under ADA.Heller, M. (2005, September). Court ruling that employer’s integrity test violated ADA could open door to litigation. Workforce Management, 84 (9), 74–77.ValuesFigure 2.8 Values Included in Schwartz’s (1992) Value InventoryValues refer to people’s stable life goals, reflecting what is most important to them. Values are established throughout one’s life as a result of accumulating life experiences, and values tend to be relatively stable.Lusk, E. J., & Oliver, B. L. (1974). Research notes. American manager’s personal value systems-revisited. Academy of Management Journal, 17 (3), 549–554; Rokeach, M. (1973). The Nature of Human Values. New York: Free Press. The values that are important to a person tend to affect the types of decisions they make, how they perceive their environment, and their actual behaviors. Moreover, a person is more likely to accept a job offer when the company possesses the values he or she cares about.Judge, T. A., & Bretz, R. D. (1992). Effects of work values on job choice decisions. Journal of Applied Psychology, 77, 261–271; Ravlin, E. C., & Meglino, B. M. (1987). Effect of values on perception and decision making: A study of alternative work values measures. Journal of Applied Psychology, 72, 666–673. Value attainment is one reason people stay in a company. When a job does not help them attain their values, they are likely to decide to leave if they are dissatisfied with the job.George, J. M., & Jones, G. R. (1996). The experience of work and turnover intentions: Interactive effects of value attainment, job satisfaction, and positive mood. Journal of Applied Psychology, 81, 318–325.What are the values people care about? As with personality dimensions, researchers have developed several frameworks, or typologies, of values. One of the particularly useful frameworks includes 10 values.Schwartz, S. H. (1992). Universals in the content and structure of values: Theoretical advances and empirical tests in 20 countries. In M. Zanna (Ed.), Advances in Experimental Social Psychology (pp. 1–65). San Diego: Academic Press.Values a person holds will affect their employment. For example, someone who values stimulation highly may seek jobs that involve fast action and high risk, such as firefighter, police officer, or emergency medicine. Someone who values achievement highly may be likely to become an entrepreneur or intrapreneur. And an individual who values benevolence and universalism may seek work in the nonprofit sector with a charitable organization or in a “helping profession,” such as nursing or social work. Like personality, values have implications for Organizing activities, such as assigning duties to specific jobs or developing the chain of command; employee values are likely to affect how employees respond to changes in the characteristics of their jobs.In terms of work behaviors, a person is more likely to accept a job offer when the company possesses the values he or she cares about. A firm’s values are often described in the company’s mission and vision statements, an element of the Planning function.Judge, T. A., & Bretz, R. D. (1992). Effects of work values on job choice decisions. Journal of Applied Psychology, 77, 261–271; Ravlin, E. C., & Meglino, B. M. (1987). Effect of values on perception and decision making: A study of alternative work values measures. Journal of Applied Psychology, 72, 666–673. Value attainment is one reason people stay in a company. When a job does not help them attain their values, they are likely to decide to leave if they are also dissatisfied with the job.George, J. M., & Jones, G. R. (1996). The experience of work and turnover intentions: Interactive effects of value attainment, job satisfaction, and positive mood. Journal of Applied Psychology, 81, 318–325.KEY TAKEAWAYPersonality traits and values are two dimensions on which people differ. Personality is the unique, relatively stable pattern of feelings, thoughts, and behavior that each individual displays. Big Five personality dimensions (openness, conscientiousness, extraversion, agreeableness, and Neuroticism) are important traits; others that are particularly relevant for work behavior include self-efficacy, self-esteem, social monitoring, and proactive personality. While personality is a stronger influence over job attitudes, its relation to job performance is weaker. Some companies use personality testing to screen out candidates. Companies using personality tests are advised to validate their tests and use them to supplement other techniques with greater validity, such as tests of cognitive ability. Companies must also ensure that a test does not discriminate against any protected group. Values express a person’s life goals; they are similar to personality traits in that they are relatively stable over time. In the workplace, a person is more likely to accept a job that provides opportunities for value attainment. People are also more likely to remain in a job and career that satisfy their values.EXERCISESThink about the personality traits covered in this section. Can you think of jobs or occupations that seem particularly suited to each trait? Which traits would be universally desirable across all jobs?What are the unique challenges of managing employees who have low self-efficacy and self-esteem? How would you deal with this situation?What are some methods that companies can use to assess employee personality?Have you ever held a job where your personality did not match the demands of the job? How did you react to this situation? How were your attitudes and behaviors affected?Identify ways in which the Big Five (of the manager and/or the employees) may affect how you as a manager would carry out the Leadership function.2.3 PerceptionLEARNING OBJECTIVESUnderstand the influence of biases in the process of perception.Describe how we perceive visual objects and how these tendencies may affect our behavior.Describe the biases of self-perception.Describe the biases inherent in our perceptions of other people.Our behavior is not only a function of our personality and values but also of the situation. We interpret our environment, formulate responses, and act accordingly. Perception may be defined as the process by which individuals detect and interpret environmental stimuli. What makes human perception so interesting is that we do not solely respond to the stimuli in our environment. We go beyond the information that is present in our environment, pay selective attention to some aspects of the environment, and ignore other elements that may be immediately apparent to other people.Our perception of the environment is not entirely rational. For example, have you ever noticed that while glancing at a newspaper or a news Web site, information that is especially interesting or important to you jumps out of the page and catches your eye? If you are a sports fan, while scrolling down the pages, you may immediately see a news item describing the latest success of your team. If you are the mother of a picky eater, an advice column on toddler feeding may be the first thing you see when looking at the page. If you were recently turned down for a loan, an item of financial news may jump out at you. Therefore, what we see in the environment is a function of what we value, our needs, our fears, and our emotions.Higgins, E. T., & Bargh, J. A. (1987). Social cognition and social perception. Annual Review of Psychology, 38, 369–425; Keltner, D., Ellsworth, P. C., & Edwards, K. (1993). Beyond simple pessimism: Effects of sadness and anger on social perception. Journal of Personality and Social Psychology, 64, 740–752. In fact, what we see in the environment may be objectively flat out wrong because of such mental tendencies. For example, one experiment showed that when people who were afraid of spiders were shown spiders, they inaccurately thought that the spider was moving toward them.Riskind, J. H., Moore, R., & Bowley, L. (1995). The looming of spiders: The fearful perceptual distortion of movement and menace. Behaviour Research and Therapy, 33, 171.In this section, we will describe some common perceptual tendencies we engage in when perceiving objects or other people and the consequences of such perceptions. Our coverage of these perceptual biases is not exhaustive—there are many other biases and tendencies that can be found in the way people perceive stimuli.Visual PerceptionFigure 2.10What do you see?Our visual perception definitely goes beyond the physical information available to us; this phenomenon is commonly referred to as “optical illusions.” Artists and designers of everything from apparel to cars to home interiors make use of optical illusions to enhance the look of the product. Managers rely on their visual perception to form their opinions about people and objects around them and to make sense of data presented in graphical form. Therefore, understanding how our visual perception may be biased is important.First, we extrapolate from the information available to us. Take a look at the first figure. The white triangle you see in the middle is not really there, but we extrapolate from the information available to us and see it there. Similarly, when we look at objects that are partially blocked, we see the whole.Kellman, P. J., & Shipley, T. F. (1991). A theory of visual interpolation in object perception. Cognitive Psychology, 23, 141–221.Figure 2.11What do you see?Source: http://en.wikipedia.org/wiki/Image:Cup_or_faces_paradox.svgNow, look at the next figure. What do you see? Most people look at this figure and see two faces or a goblet, depending on which color—black or white—they focus upon. Our visual perception is often biased because we do not perceive objects in isolation. The contrast between our focus of attention and the remainder of the environment may make an object appear bigger or smaller.This principle is shown here in the third figure. At first glance, the circle on the left may appear bigger, but they are the same size. This is due to the visual comparison of the middle circle on the left with its surrounding circles, whereas the middle circle on the right is compared with the bigger circles surrounding it.How do these tendencies influence behavior in organizations? The fact that our visual perception is faulty means that managers should not always take what they see at face value. Let’s say that you do not like one of your peers and you think that you saw this person surfing the Web during work hours. Are you absolutely sure, or are you simply filling the gaps? Have you really seen this person surf unrelated Web sites, or is it possible that the person was searching for work-related purposes? The tendency to fill in the gaps also causes our memory to be faulty. Imagine that you have been at a meeting where several people made comments that you did not agree with. After the meeting, you may attribute most of these comments to people you did not like. In other words, you may twist the reality to make your memories more consistent with your opinions of people.The tendency to compare and contrast objects and people to each other also causes problems. For example, if you are a manager who has been given an office much smaller than the other offices on the floor, you may feel that your workspace is crowded and uncomfortable. If the same office is surrounded by smaller offices, you may actually feel that your office is comfortable and roomy. In short, our biased visual perception may lead to the wrong inferences about the people and objects around us.Figure 2.12Which of the circles in the middle is bigger?Self-PerceptionHuman beings are prone to errors and biases when perceiving themselves. Moreover, the type of bias people have depends on their personality. Many people suffer from self-enhancement bias. This is the tendency to overestimate our performance and capabilities and see ourselves in a more positive light than others see us. People who have a narcissistic personality are particularly subject to this bias, but many others also have this bias to varying degrees.John, O. P., & Robins, R. W. (1994). Accuracy and bias in self-perception: Individual differences in self-enhancement and the role of narcissism. Journal of Personality and Social Psychology, 66, 206–219. At the same time, other people have the opposing extreme, which may be labeled as self-effacement bias (or modesty bias). This is the tendency to underestimate our performance and capabilities and to see events in a way that puts ourselves in a more negative light. We may expect that people with low self-esteem may be particularly prone to making this error. These tendencies have real consequences for behavior in organizations. For example, people who suffer from extreme levels of self-enhancement tendencies may not understand why they are not getting promoted or rewarded, while those who have a tendency to self-efface may project low confidence and take more blame for their failures than necessary.When human beings perceive themselves, they are also subject to the false consensus error. Simply put, we overestimate how similar we are to other people.Fields, J. M., & Schuman, H. (1976). Public beliefs about the beliefs of the public. The Public Opinion Quarterly, 40 (4), 427–448; Ross, L., Greene, D., & House, P. (1977). The “false consensus effect”: An egocentric bias in social perception and attribution processes. Journal of Experimental Social Psychology, 13, 279–301. We assume that whatever quirks we have are shared by a larger number of people than in reality. People who take office supplies home, tell white lies to their boss or colleagues, or take credit for other people’s work to get ahead may genuinely feel that these behaviors are more common than they really are. The problem for behavior in organizations is that, when people believe that a behavior is common and normal, they may repeat the behavior more freely. Under some circumstances, this may lead to a high level of unethical or even illegal behaviors.Social PerceptionHow we perceive other people in our environment is also shaped by our biases. Moreover, how we perceive others will shape our behavior, which in turn will shape the behavior of the person we are interacting with.One of the factors biasing our perception is stereotypes. Stereotypes are generalizations based on a group characteristic. For example, believing that women are more cooperative than men or that men are more assertive than women are stereotypes. Stereotypes may be positive, negative, or neutral. In the abstract, stereotyping is an adaptive function—we have a natural tendency to categorize the information around us to make sense of our environment. Just imagine how complicated life would be if we continually had to start from scratch to understand each new situation and each new person we encountered! What makes stereotypes potentially discriminatory and a perceptual bias is the tendency to generalize from a group to a particular individual. If the belief that men are more assertive than women leads to choosing a man over an equally qualified female candidate for a position, the decision will be biased, unfair, and potentially illegal.Stereotypes often create a situation called self-fulfilling prophecy. This happens when an established stereotype causes one to behave in a certain way, which leads the other party to behave in a way that confirms the stereotype.Snyder, M., Tanke, E. D., & Berscheid, E. (1977). Social perception and interpersonal behavior: On the self-fulfilling nature of social stereotypes. Journal of Personality and Social Psychology, 35, 656–666. If you have a stereotype such as “Asians are friendly,” you are more likely to be friendly toward an Asian person. Because you are treating the other person more nicely, the response you get may also be nicer, which confirms your original belief that Asians are friendly. Of course, just the opposite is also true. Suppose you believe that “young employees are slackers.” You are less likely to give a young employee high levels of responsibility or interesting and challenging assignments. The result may be that the young employee reporting to you may become increasingly bored at work and start goofing off, confirming your suspicions that young people are slackers!Stereotypes persist because of a process called selective perception. Selective perception simply means that we pay selective attention to parts of the environment while ignoring other parts, which is particularly important during the Planning process. Our background, expectations, and beliefs will shape which events we notice and which events we ignore. For example, an executive’s functional background will affect the changes he or she perceives in the environment.Waller, M. J., Huber, G. P., & Glick, W. H. (1995). Functional background as a determinant of executives’ selective perception. Academy of Management Journal, 38, 943–974. Executives with a background in sales and marketing see the changes in the demand for their product, while executives with a background in information technology may more readily perceive the changes in the technology the company is using. Selective perception may also perpetuate stereotypes because we are less likely to notice events that go against our beliefs. A person who believes that men drive better than women may be more likely to notice women driving poorly than men driving poorly. As a result, a stereotype is maintained because information to the contrary may not even reach our brain!Let’s say we noticed information that goes against our beliefs. What then? Unfortunately, this is no guarantee that we will modify our beliefs and prejudices. First, when we see examples that go against our stereotypes, we tend to come up with subcategories. For example, people who believe that women are more cooperative when they see a female who is assertive may classify her as a “career woman.” Therefore, the example to the contrary does not violate the stereotype and is explained as an exception to the rule.Higgins, E. T., & Bargh, J. A. (1987). Social cognition and social perception. Annual Review of Psychology, 38, 369–425. Or, we may simply discount the information. In one study, people in favor of and against the death penalty were shown two studies, one showing benefits for the death penalty while the other disconfirming any benefits. People rejected the study that went against their belief as methodologically inferior and ended up believing in their original position even more!Lord, C. G., Ross, L., & Lepper, M. R. (1979) Biased assimilation and attitude polarization: The effects of prior theories on subsequently considered evidence. Journal of Personality and Social Psychology, 37, 2098–2109. In other words, using data to debunk people’s beliefs or previously established opinions may not necessarily work, a tendency to guard against when conducting Planning and Controlling activities.One other perceptual tendency that may affect work behavior is first impressions. The first impressions we form about people tend to have a lasting effect. In fact, first impressions, once formed, are surprisingly resilient to contrary information. Even if people are told that the first impressions were caused by inaccurate information, people hold on to them to a certain degree because once we form first impressions, they become independent from the evidence that created them.Ross, L., Lepper, M. R., & Hubbard, M. (1975). Perseverance in self-perception and social perception: Biased attributional processes in the debriefing paradigm. Journal of Personality and Social Psychology, 32, 880–892. Therefore, any information we receive to the contrary does not serve the purpose of altering them. Imagine the first day that you met your colleague Anne. She treated you in a rude manner, and when you asked for her help, she brushed you off. You may form the belief that Anne is a rude and unhelpful person. Later on, you may hear that Anne’s mother is seriously ill, making Anne very stressed. In reality, she may have been unusually stressed on the day you first met her. If you had met her at a time when her stress level was lower, you could have thought that she is a really nice person. But chances are, your impression that she is rude and unhelpful will not change even when you hear about her mother. Instead, this new piece of information will be added to the first one: She is rude, unhelpful, and her mother is sick.As a manager, you can protect yourself against this tendency by being aware of it and making a conscious effort to open your mind to new information. It would also be to your advantage to pay careful attention to the first impressions you create, particularly during job interviews.KEY TAKEAWAYPerception is how we make sense of our environment in response to environmental stimuli. While perceiving our surroundings, we go beyond the objective information available to us and our perception is affected by our values, needs, and emotions. There are many biases that affect human perception of objects, self, and others. When perceiving the physical environment, we fill in the gaps and extrapolate from the available information. When perceiving others, stereotypes influence our behavior. Stereotypes may lead to self-fulfilling prophecies. Stereotypes are perpetuated because of our tendency to pay selective attention to aspects of the environment and ignore information inconsistent with our beliefs. Understanding the perception process gives us clues to understanding human behavior.EXERCISESWhat are some of the typical errors, or optical illusions, that we experience when we observe physical objects?What are the problems of false consensus error? How can managers deal with this tendency?Describe a situation where perception biases have or could affect any of the P-O-L-C facets. Use an example you have experienced or observed, or, if you do not have such an example, create a hypothetical situation. How do we manage the fact that human beings develop stereotypes? Is there such as thing as a good stereotype? How would you prevent stereotypes from creating unfairness in management decisions?Describe a self-fulfilling prophecy you have experienced or observed in action. Was the prophecy favorable or unfavorable? If unfavorable, how could the parties have chosen different behavior to produce a more positive outcome?2.4 Work AttitudesLEARNING OBJECTIVESDefine what work attitudes are.Define and differentiate between job satisfaction and organizational commitment.List several important factors influencing job satisfaction and organizational commitment.Identify two ways companies can track attitudes in the workplace.How we behave at work often depends on how we feel about being there. Therefore, making sense of how people behave depends on understanding their work attitudes. An attitude refers to our opinions, beliefs, and feelings about aspects of our environment. We have attitudes toward the food we eat, people we meet, courses we take, and things we do. At work, two job attitudes have the greatest potential to influence how we behave. These are job satisfaction and organizational commitment.Job satisfaction refers to the feelings people have toward their job. If the number of studies conducted on job satisfaction is an indicator, job satisfaction is probably the most important job attitude. Institutions such as Gallup or the Society for Human Resource Management (SHRM) periodically conduct studies of job satisfaction to track how satisfied employees are at work. According to a recent Gallup survey, 90% of the employees surveyed said that they were at least somewhat satisfied with their jobs. A recent SHRM study revealed 40% who were very satisfied.Anonymous. (2007, August). What keeps employees satisfied? HR Focus, 10–13; Sandberg, J. (2008, April 15). For many employees, a dream job is one that isn’t a nightmare. Wall Street Journal, B1.Organizational commitment is the emotional attachment people have toward the company they work for. A highly committed employee is one who accepts and believes in the company’s values, is willing to put out effort to meet the company’s goals, and has a strong desire to remain with the company. People who are committed to their company often refer to their company as “we” as opposed to “they” as in “in this company, we have great benefits.” The way we refer to the company indicates the type of attachment and identification we have with the company.There is a high degree of overlap between job satisfaction and organizational commitment because things that make us happy with our job often make us more committed to the company as well. Companies believe that these attitudes are worth tracking because they often are associated with outcomes that are important to the Controlling role, such as performance, helping others, absenteeism, and turnover.What Causes Positive Work Attitudes?What makes you satisfied with your job and develop commitment to your company? Research shows that people pay attention to several factors of their work environment, including characteristics of the job (a function of Organizing activities), how they are treated (related to Leadership actions), the relationships they form with colleagues and managers (also Leadership related), and the level of stress the job entails.As we have seen earlier in this chapter, personality and values play important roles in how employees feel about their jobs.Figure 2.14 Factors Contributing to Job Satisfaction and Organizational CommitmentJob CharacteristicsEmployees tend to be more satisfied and committed in jobs that involve certain characteristics. The ability to use a variety of skills, having autonomy at work, receiving feedback on the job, and performing a significant task are some job characteristics that are related to satisfaction and commitment. However, the presence of these factors is not important for everyone. Some people have a high need for growth. These employees tend to be more satisfied when their jobs help them build new skills and improve.Loher, B. T., Noe, R. A., Moeller, N. L., & Fitzgerald, M. P. (1985). A meta-analysis of the relation of job characteristics to job satisfaction. Journal of Applied Psychology, 70, 280–289; Mathieu, J. E., & Zajac, D. M. (1990). A review and meta-analysis of the antecedents, correlates, and consequences of organizational commitment. Psychological Bulletin, 108, 171–194.Organizational Justice and the Psychological ContractA strong influence over our satisfaction level is how fairly we are treated. People pay attention to the fairness of company policies and procedures, fair and kind treatment from supervisors, and fairness of their pay and other rewards they receive from the company.Cohen-Charash, Y., & Spector, P. E. (2001). The role of justice in organizations: A meta-analysis. Organizational Behavior and Human Decision Processes, 86, 278–321; Colquitt, J. A., Conlon, D. E., Wesson, M. J., Porter, C. O. L. H., & Ng, K. Y. (2001). Justice at the millennium: A meta-analytic review of 25 years of organizational justice research. Journal of Applied Psychology, 86, 425–445; Meyer, J. P., Stanley, D. J., Herscivitch, L., & Topolnytsky, L. (2002). Affective, continuance, and normative commitment to the organization: A meta-analysis of antecedents, correlates, and consequences. Journal of Vocational Behavior, 61, 20–52. Organizational justice can be classified into three categories: (1) procedural (fairness in the way policies and processes are carried out), (2) distributive (the allocation of resources or compensation and benefits), and (3) interactional (the degree to which people are treated with dignity and respect). At the root of organizational justice is trust, something that is easier to break than to repair if broken.The psychological contract is the unspoken, informal understanding that an employee will contribute certain things to the organization (e.g., work ability and a willing attitude) and will receive certain things in return (e.g., reasonable pay and benefits). Under the psychological contract, an employee may believe that if he or she works hard and receives favorable performance evaluations, he or she will receive an annual bonus, periodic raises and promotions, and will not be laid off. Since the “downsizing” trend of the past 20 years, many commentators have declared that the psychological contract is violated more often than not.Relationships at WorkTwo strong predictors of our happiness at work and commitment to the company are our relationships with coworkers and managers. The people we interact with, how friendly they are, whether we are socially accepted in our work group, whether we are treated with respect by them are important to our happiness at work. Research also shows that our relationship with our manager, how considerate the manager is, and whether we build a trust-based relationship with our manager are critically important to our job satisfaction and organizational commitment.Bauer, T. N., Bodner, T., Erdogan, B., Truxillo, D. M., & Tucker, J. S. (2007). Newcomer adjustment during organizational socialization: A meta-analytic review of antecedents, outcomes, and methods. Journal of Applied Psychology, 92, 707–721; Gerstner, C. R., & Day, D. V. (1997). Meta-analytic review of leader-member exchange theory: Correlates and construct issues. Journal of Applied Psychology, 82(6), 827–844; Judge, T. A., Piccolo, R. F., & Ilies, R. (2004). The forgotten ones? The validity of consideration and initiating structure in leadership research. Journal of Applied Psychology, 89, 36–51; Kinicki, A. J., McKee-Ryan, F. M., Schriesheim, C. A., & Carson, K. P. (2002). Assessing the construct validity of the job descriptive index: A review and meta-analysis. Journal of Applied Psychology, 87, 14–32; Mathieu, J. E., & Zajac, D. M. (1990). A review and meta-analysis of the antecedents, correlates, and consequences of organizational commitment. Psychological Bulletin, 108, 171–194; Meyer, J. P., Stanley, D. J., Herscivitch, L., & Topolnytsky, L. (2002). Affective, continuance, and normative commitment to the organization: A meta-analysis of antecedents, correlates, and consequences. Journal of Vocational Behavior, 61, 20–52; Rhoades, L., & Eisenberger, R. (2002). Perceived organizational support: A review of the literature. Journal of Applied Psychology, 87, 698–714. When our manager and overall management listen to us, care about us, and value our opinions, we tend to feel good at work. When establishing effective relations with employees, little signals that you care about your employees go a long way. For example, in 2004 San Francisco’s Hotel Carlton was taken over and renovated by a new management group, Joie de Vivre Hospitality. One of the small things the new management did that created dramatic results was that, in response to an employee attitude survey, they replaced the old vacuum cleaners housekeepers were using and started replacing them every year. It did not cost the company much to replace old machinery, but this simple act of listening to employee problems and taking action went a long way to make employees feel better.Dvorak, P. (2007, December 17). Theory and practice: Hotelier finds happiness keeps staff checked in; focus on morale boosts Joie de Vivre’s grades from workers, guests. Wall Street Journal, B3.StressNot surprisingly, the amount of stress present in a job is related to employee satisfaction and commitment. Stressors range from environmental ones (noise, heat, inadequate ventilation) to interpersonal ones (organizational politics, conflicts with coworkers) to organizational ones (pressure to avoid making mistakes, worrying about the security of the job). Some jobs, such as intensive care unit nurse and military fighter pilot, are inherently very stressful.Another source of stress has to do with the roles people are expected to fulfill on and off the job. Role ambiguity is uncertainty about what our responsibilities are in the job. Role conflict involves contradictory demands at work; it can also involve conflict between fulfilling one’s role as an employee and other roles in life, such as the role of parent, friend, or community volunteer.Generally speaking, the higher the stress level, the lower job satisfaction tends to be. But not all stress is bad, and some stressors actually make us happier! For example, working under time pressure and having a high degree of responsibility are stressful, but they are also perceived as challenges and tend to be related to high levels of satisfaction.Kinicki, A. J., McKee-Ryan, F. M., Schriesheim, C. A., & Carson, K. P. (2002). Assessing the construct validity of the job descriptive index: A review and meta-analysis. Journal of Applied Psychology, 87, 14–32; Meyer, J. P., Stanley, D. J., Herscivitch, L., & Topolnytsky, L. (2002). Affective, continuance, and normative commitment to the organization: A meta-analysis of antecedents, correlates, and consequences. Journal of Vocational Behavior, 61, 20–52; Miller, B. K., Rutherford, M. A., & Kolodinsky, R. W. (2008). Perceptions of organizational politics: A meta-analysis of outcomes. Journal of Business and Psychology, 22, 209–222; Podsakoff, N. P., LePine, J. A., & LePine, M. A. (2007). Differential challenge stressor-hindrance stressor relationships with job attitudes, turnover intentions, turnover, and withdrawal behavior: A meta-analysis. Journal of Applied Psychology, 92, 438–454.Assessing Work Attitudes in the WorkplaceGiven that work attitudes may give us clues about who will leave or stay, who will perform better, and who will be more engaged, tracking satisfaction and commitment levels is a helpful step for companies. If there are companywide issues that make employees unhappy and disengaged, these need to be resolved. There are at least two systematic ways in which companies can track work attitudes: through attitude surveys and exit interviews. Companies such as KFC and Long John Silver restaurants, the SAS Institute, Google, and others give periodic attitude surveys, which are used to track employee work attitudes. Companies can get more out of these surveys if responses are held confidential. If employees become concerned that their individual responses will be shared with their immediate manager, they are less likely to respond honestly. Moreover, success of these surveys depends on the credibility of management in the eye of employees. If management periodically collects these surveys but no action comes out of them, employees may adopt a more cynical attitude and start ignoring these surveys, hampering the success of future efforts. Exit interviews involve a meeting with the departing employee. This meeting is often conducted by a member of the human resource management department. If conducted well, this meeting may reveal what makes employees dissatisfied at work and give management clues about areas for improvement.How strong is the attitude-behavior link? First of all, it depends on the attitude in question. Your attitudes toward your colleagues may influence whether you actually help them on a project, but they may not be a good predictor of whether you quit your job. Second, it is worth noting that attitudes are more strongly related to intentions to behave in a certain way, rather than actual behaviors. When you are dissatisfied with your job, you will have the intention to leave. Whether you actually leave will be a different story! Your leaving will depend on many factors, such as availability of alternative jobs in the market, your employability in a different company, and sacrifices you have to make while changing jobs. Thus, while the attitudes assessed through employee satisfaction surveys and exit interviews can provide some basis for predicting how a person might behave in a job, remember that behavior is also strongly influenced by situational constraints.KEY TAKEAWAYWork attitudes are the feelings we have toward different aspects of the work environment. Job satisfaction and organizational commitment are two key attitudes that are the most relevant to important outcomes. In addition to personality and fit with the organization, work attitudes are influenced by the characteristics of the job, perceptions of organizational justice and the psychological contract, relationships with coworkers and managers, and the stress levels experienced on the job. Many companies assess employee attitudes through surveys of worker satisfaction and through exit interviews. The usefulness of such information is limited, however, because attitudes create an intention to behave in a certain way, but they do not always predict actual behaviors.EXERCISESWhat is the difference between job satisfaction and organizational commitment? How do the two concepts relate to one another?In your opinion, of the factors that influence work attitudes, which three are the most important in making people dissatisfied with their jobs? Which three are the most important relating to organizational commitment?Do you think making employees happier at work is a good way of motivating people? When would high satisfaction not be related to high performance?How important is pay in making people attached to a company and making employees satisfied?Do you think younger and older people are similar in what makes them happier at work and makes them committed to their companies? Do you think there are male-female differences? Explain your answers.2.5 The Interactionist Perspective: The Role of FitLEARNING OBJECTIVESDifferentiate between person-organization and person-job fit.Understand the relationship between person-job fit and work behaviors.Understand the relationship between person-organization fit and work behaviors.As we have seen in the earlier sections of this chapter, human beings bring in their personality, values, attitudes, perceptions, and other stable traits to work. Imagine that you are interviewing an employee who is proactive, creative, and willing to take risks. Would this person be a good job candidate? What behaviors would you expect this person to demonstrate?The questions we pose here are misleading. While human beings bring their traits to work, every organization is also different, and every job is different. According to the interactionist perspective, behavior is a function of the person and the situation interacting with each other. Think about it. Would a shy person speak up in class? While a shy person may not feel like speaking if he or she is very interested in the subject, knows the answers to the questions, feels comfortable within the classroom environment, and knows that class participation is 30% of the course grade, this person may speak up in class regardless of his or her shyness. Similarly, the behavior you may expect from someone who is proactive, creative, and willing to take risks will depend on the situation.The fit between what we bring to our work environment and the environmental demands influences not only our behavior but also our work attitudes. Therefore, person-job fit and person-organization fit are positively related to job satisfaction and commitment. When our abilities match job demands, and when our values match company values, we tend to be more satisfied with our job and more committed to the company we work for.Kristof-Brown, A. L., Zimmerman, R. D., & Johnson, E. C. (2005). Consequences of individuals’ fit at work: A meta-analysis of person-job, person-organization, person-group, and person-supervisor fit. Personnel Psychology, 58, 281–342; Verquer, M. L., Beehr, T. A., & Wagner, S. H. (2003). A meta-analysis of relations between person-organization fit and work attitudes. Journal of Vocational Behavior, 63, 473–489.When companies hire employees, they are interested in assessing at least two types of fit. Person-organization fit refers to the degree to which a person’s personality, values, goals, and other characteristics match those of the organization. Person-job fit is the degree to which a person’s knowledge, skills, abilities, and other characteristics match the job demands. (Human resources professionals often use the abbreviation KSAO to refer to these four categories of attributes.) Thus, someone who is proactive and creative may be a great fit for a company in the high-tech sector that would benefit from risk-taking individuals but may be a poor fit for a company that puts a high priority on routine and predictable behavior, such as a nuclear power plant. Similarly, this proactive and creative person may be a great fit for a field-based job such as marketing manager but a poor fit for an office job highly dependent on rules such as accountant.When people fit into their organization, they tend to be more satisfied with their jobs, more committed to their companies, are more influential in their company, and remain longer in their company.Anderson, C., Spataro, S. E., & Flynn, F. J. (2008). Personality and organizational culture as determinants of influence. Journal of Applied Psychology, 93, 702–710; Cable, D. M., & DeRue, D. S. (2002). The convergent and discriminant validity of subjective fit perceptions. Journal of Applied Psychology, 87, 875–884; Kristof-Brown, A. L., Zimmerman, R. D., & Johnson, E. C. (2005). Consequences of individuals’ fit at work: A meta-analysis of person-job, person-organization, person-group, and person-supervisor fit. Personnel Psychology, 58, 281–342; O’Reilly, C. A., Chatman, J., & Caldwell, D. F. (1991). People and organizational culture: A profile comparison approach to assessing person-organization fit. Academy of Management Journal, 34, 487–516; Saks, A. M., & Ashforth, B. E. (2002). Is job search related to employment quality? It all depends on the fit. Journal of Applied Psychology, 87, 646–654. One area of controversy is whether these people perform better. Some studies found a positive relationship between person-organization fit and job performance, but this finding was not present in all studies, so it seems that only sometimes fitting with a company’s culture predicts job performance.Arthur, W., Bell, S. T., Villado, A. J., & Doverspike, D. (2006). The use of person-organization fit in employment decision making: An assessment of its criterion-related validity. Journal of Applied Psychology, 91, 786–801. It also seems that fitting in with the company values is important to some people more than to others. For example, people who have worked in multiple companies tend to understand the effect of a company’s culture better and therefore pay closer attention to whether they will fit in with the company when making their decisions.Kristof-Brown, A. L., Jansen, K. J., & Colbert, A. E. (2002). A policy-capturing study of the simultaneous effects of fit with jobs, groups, and organizations. Journal of Applied Psychology, 87, 985–993. Also, when they build good relationships with their supervisors and the company, being a misfit does not seem to matter as much.Erdogan, B., Kraimer, M. L., & Liden, R. C. (2004). Work value congruence and intrinsic career success. Personnel Psychology, 57, 305–332.KEY TAKEAWAYWhile personality, values, attitudes, perceptions, and KSAOs are important, we need to keep in mind that behavior is jointly determined by the person and the situation. Certain situations bring out the best in people, and someone who is a poor performer in one job may turn into a star employee in a different job. Therefore, managers need to consider the individual and the situation when making Organizing decisions about the job or when engaging in Leadership activities like building teams or motivating employees.EXERCISESHow can a company assess person-job fit before hiring employees? What are the methods you think would be helpful?How can a company determine person-organization fit before hiring employees? Which methods do you think would be helpful?What can organizations do to increase person-job and person-organization fit after they hire employees?2.6 Work BehaviorsLEARNING OBJECTIVESDefine job performance, organizational citizenship, absenteeism, and turnover.Explain factors associated with each type of work behavior.One of the important objectives of the field of organizational behavior is to understand why people behave the way they do. Which behaviors are we referring to here? We will focus on four key work behaviors: job performance, organizational citizenship behaviors, absenteeism, and turnover. Note that the first two behaviors are desirable ones, whereas the other two are often regarded as undesirable. While these four are not the only behaviors organizational behavior is concerned about, if you understand what we mean by these behaviors and the major influences over each type of behavior, you will gain more clarity about analyzing the behaviors of others in the workplace.Figure 2.15 Factors That Have the Strongest Influence over Work BehaviorsJob PerformanceJob performance refers to the level to which an employee successfully fulfills the factors included in the job description. For each job, the content of job performance may differ. Measures of job performance include quality and quantity of work performed by the employee, the accuracy and speed with which the job is performed, and the overall effectiveness of the person on the job.In many companies, job performance determines whether a person is promoted, rewarded with pay raises, given additional responsibilities, or fired from the job. Therefore, most employers observe and track job performance. This is done by keeping track of data on topics such as the number of sales the employee closes, the number of clients the employee visits, the number of defects found in the employee’s output, or the number of customer complaints or compliments received about the person’s work. In some jobs, objective performance data may not be available, and instead supervisor, coworker, customer, and subordinate assessments of the quality and quantity of work performed by the person become the indicators of job performance. Job performance is one of the main outcomes studied in organizational behavior and is an important variable managers must assess when they are engaged in the Controlling role.What Are the Major Predictors of Job Performance?Under which conditions do people perform well, and what are the characteristics of high performers? These questions receive a lot of research attention. It seems that the most powerful influence over our job performance is our general mental ability also known as cognitive ability or intelligence, and often abbreviated as “g.” General mental ability can be divided into several components—reasoning abilities, verbal and numerical skills, and analytical skills—and it seems to be important across different situations. It seems that “g” starts influencing us early in our school days because it is strongly correlated with measures of academic success even in childhood.Kuncel, N. R., Hezlett, S. A., & Ones, D. S. (2004). Academic performance, career potential, creativity, and job performance: Can one construct predict them all? Journal of Personality and Social Psychology, 86, 148–161. In adult life, “g” is also correlated with different measures of job performance.Bertua, C., Anderson, N., & Salgado, J. F. (2005). The predictive validity of cognitive ability tests: A UK meta-analysis. Journal of Occupational and Organizational Psychology, 78, 387–409; Kuncel, N. R., Hezlett, S. A., & Ones, D. S. (2004). Academic performance, career potential, creativity, and job performance: Can one construct predict them all? Journal of Personality and Social Psychology, 86, 148–161; Salgado, J. F., Anderson, N., Moscoso, S., Bertua, C., de Fruyt, F., & Rolland, J. P. (2003). A meta-analytic study of general mental ability validity for different occupations in the European Community. Journal of Applied Psychology, 88, 1068–1081; Schmidt, F. L., & Hunter, J. (2004). General mental ability of the world of work: Occupational attainment and job performance. Journal of Personality and Social Psychology, 86 (1), 162–173; Vinchur, A. J., Schippmann, J. S., Switzer, F. S., & Roth, P. L. (1998). A meta-analytic review of predictors of job performance for salespeople. Journal of Applied Psychology, 83, 586–597. It seems that the influence of “g” on performance is important across different settings, but there is also variation. In jobs with high complexity, it is much more critical to have high general mental abilities. Examples of such jobs are manager, sales representative, engineer, and professions such as law and medicine. In jobs such as police officer and clerical worker, the importance of “g” for high performance is still important but weaker.Perceptions of organizational justice and interpersonal relationships are factors determining our performance level. When we feel that we are being fairly treated by the company, that our manager is supportive and rewards high performance, and when we trust the people we work with, we tend to perform better. Why? It seems that when we believe we are treated well, we want to reciprocate. Therefore, we treat the company well by performing our job more effectively.The stress we experience on the job also determines our performance level. When we are stressed, our mental energies are drained. Instead of focusing on the task at hand, we start concentrating on the stressor trying to cope with it. Because our attention and energies are diverted to dealing with stress, our performance suffers. Having role ambiguity and experiencing conflicting role demands are related to lower performance.Gilboa, S., Shirom, A., Fried, Y., & Cooper, C. (2008). A meta-analysis of work demand stressors and job performance: Examining main and moderating effects. Personnel Psychology, 61, 227–271. Stress that prevents us from doing our jobs does not have to be related to our experiences at work. For example, according to a survey conducted by Workplace Options, 45% of the respondents said that financial stress affects work performance. When people are in debt, worrying about their mortgage payments or college payments of their kids, their performance will suffer.Anonymous. (2008, June). Financial stress: The latest worker risk. HR focus, 85(6), 12.Our work attitudes, particularly job satisfaction, are also correlates of job performance but not to as great a degree as you might expect. Many studies have been devoted to understanding whether happy employees are more productive. Some studies show weak correlations between satisfaction and performance while others show higher correlations (what researchers would call “medium sized” correlations of .30).Iaffaldano, M. T., & Muchinsky, P. M. (1985). Job satisfaction and job performance: A meta-analysis. Psychological Bulletin, 97, 251–273; Judge, T. A., Thoresen, C. J., Bono, J. E., & Patton, G. T. (2001). The job satisfaction–job performance relationship: A qualitative and quantitative review. Journal of Applied Psychology, 127, 376–407; Riketta, M. (2008). The causal relation between job attitudes and performance: A meta-analysis of panel studies. Journal of Applied Psychology, 93, 472–481. The correlation between commitment and performance tends to be even weaker.Mathieu, J. E., & Zajac, D. M. (1990). A review and meta-analysis of the antecedents, correlates, and consequences of organizational commitment. Psychological Bulletin, 108, 171–194; Riketta, M. (2002). Attitudinal organizational commitment and job performance: A meta-analysis. Journal of Organizational Behavior, 23, 257–266; Wright, T. A., & Bonnett, D. G. (2002). The moderating effects of employee tenure on the relation between organizational commitment and job performance: A meta-analysis. Journal of Applied Psychology, 87, 1183–1190. Even with a correlation of .30, though, the relationship may be lower than you may have expected. Why is this the case?It seems that happy workers have an inclination to be more engaged at work. They may want to perform better. They may be more motivated. But there are also exceptions. Think about this: Because you want to perform, does this mean that you will actually perform better? Chances are your skill level in performing the job will matter. There are also some jobs where performance depends on factors beyond an employee’s control, such as the pace of the machine they are working on. Because of this reason, in professional jobs such as with engineers and researchers, we see a stronger link between work attitudes and performance, as opposed to manual jobs such as assembly-line workers.Riketta, M. (2002). Attitudinal organizational commitment and job performance: A meta-analysis. Journal of Organizational Behavior, 23, 257–266. Also, think about the alternative possibility: If you don’t like your job, does this mean that you will reduce your performance? Maybe up to a certain point, but there will be factors that prevent you from reducing your performance: such as the fear of getting fired, the desire to get a promotion so that you can get out of the job that you dislike so much, or your professional work ethic. As another example, among nurses, there seems to be a weak correlation between satisfaction and performance. Even when they are unhappy, nurses put a lot of effort into their work because they feel a moral obligation to help their patients. As a result, we should not expect a one-on-one relationship between satisfaction and performance. Still, the observed correlation between work attitudes and performance is important and has practical value.Finally, job performance has a modest relationship with personality traits, particularly conscientiousness. People who are organized, reliable, dependable, and achievement-oriented seem to outperform others in various contexts.Barrick, M. R., & Mount, M. K. (1991). The big five personality dimensions and job performance: A meta-analysis. Personnel Psychology, 44, 1–26; Dudley, N. M., Orvis, K. A., Lebiecki, J. E., & Cortina, J. M. (2006). A meta-analytic investigation of conscientiousness in the prediction of job performance: Examining the intercorrelations and the incremental validity of narrow traits. Journal of Applied Psychology, 91, 40–57; Vinchur, A. J., Schippmann, J. S., Switzer, F. S., & Roth, P. L. (1998). A meta-analytic review of predictors of job performance for salespeople. Journal of Applied Psychology, 83, 586–597.Organizational Citizenship BehaviorsWhile job performance refers to the performance of duties listed in one’s job description, organizational citizenship behaviors involve performing behaviors that are more discretionary. Organizational citizenship behaviors (OCB) are voluntary behaviors employees perform to help others and benefit the organization. Helping a new coworker understand how things work in this company, volunteering to organize the company picnic, and providing suggestions to management about how to improve business processes are some examples of citizenship behaviors. These behaviors contribute to the smooth operation of business.What are the major predictors of citizenship behaviors? Unlike performance, citizenship behaviors do not depend so much on one’s abilities. Job performance, to a large extent, depends on our general mental abilities. When you add the education, skills, knowledge, and abilities that are needed to perform well, the role of motivation on performance becomes more limited. As a result, just because someone is motivated will not mean that the person will perform well. For citizenship behaviors, in contrast, the motivation-behavior link is clearer. We help others around us if we feel motivated to do so, and managers, in the Leadership role, are responsible for motivating employees.Perhaps the most important factor explaining our citizenship behaviors is organizational justice and interpersonal relationships. When we have a good relationship with our manager and we are supported by our manager, when we are treated fairly, when we are attached to our peers, when we trust the people around us, we are more likely to engage in citizenship behaviors. A high-quality relationship with people we work with will mean that simply doing our job will not be enough to maintain the relationship. In a high-quality relationship, we feel the obligation to reciprocate and go the extra mile to help them out.Cohen-Charash, Y., & Spector, P. E. (2001). The role of justice in organizations: A meta-analysis. Organizational Behavior and Human Decision Processes, 86, 278–321; Colquitt, J. A., Conlon, D. E., Wesson, M. J., Porter, C. O. L. H., & Ng, K. Y. (2001). Justice at the millenium: A meta-analytic review of 25 years of organizational justice research. Journal of Applied Psychology, 86, 425–445; Colquitt, J. A., Scott, B. A., & LePine, J. A. (2007). Trust, trustworthiness, and trust propensity: A meta-analytic test of their unique relationships with risk taking and job performance. Journal of Applied Psychology, 92, 909–927; Fassina, N. E., Jones, D. A., & Uggerslev, K. L. (2008). Relationship clean-up time: Using meta-analysis and path analysis to clarify relationships among job satisfaction, perceived fairness, and citizenship behaviors. Journal of Management, 34, 161–188; Hoffman, B. J., Blair, C. A., Meriac, J. P., & Woehr, D. J. (2007). Expanding the criterion domain? A quantitative review of the OCB literature. Journal of Applied Psychology, 92, 555–566; Ilies, R., Nahrgang, J. D., & Morgeson, F. P. (2007). Leader-member exchange and citizenship behaviors: A meta-analysis. Journal of Applied Psychology, 92, 269–277; Lepine, J. A., Erez, A., & Johnson, D. E. (2002). The nature and dimensionality of organizational citizenship behavior: A critical review and meta-analysis. Journal of Applied Psychology, 87, 52–65; Organ, D. W., & Ryan, K. (1995). A meta-analytic review of attitudinal and dispositional predictors of organizational citizenship behavior. Personnel Psychology, 48, 775–802; Podsakoff, P. M., MacKenzie, S. B., & Bommer, W. H. (1996). Meta-analysis of the relationships between Kerr and Jermier’s substitutes for leadership and employee job attitudes, role perceptions, and performance. Journal of Applied Psychology, 81, 380–399; Riketta, M., & Van Dick, R. (2005). Foci of attachment in organizations: A meta-analytic comparison of the strength and correlates of workgroup versus organizational identification and commitment. Journal of Vocational Behavior, 67, 490–510.Our personality is yet another explanation for why we perform citizenship behaviors. Personality is a modest predictor of actual job performance but a much better predictor of citizenship. People who are conscientious, agreeable, and low on Neuroticism tend to perform citizenship behaviors more often than others.Borman, W. C., Penner, L. A., Allen, T. D., & Motowidlo, S. J. (2001). Personality predictors of citizenship performance. International Journal of Selection and Assessment, 9, 52–69; Dalal, R. S. (2005). A meta-analysis of the relationship between organizational citizenship behavior and counterproductive work behavior. Journal of Applied Psychology, 90, 1241–1255; Diefendorff, J. M., Brown, D. J., Kamin, A. M., & Lord, R. G. (2002). Examining the roles of job involvement and work centrality in predicting organizational citizenship behaviors and job performance. Journal of Organizational Behavior, 23, 93–108; Organ, D. W., & Ryan, K. (1995). A meta-analytic review of attitudinal and dispositional predictors of organizational citizenship behavior. Personnel Psychology, 48, 775–802.Job attitudes are also moderately related to citizenship behaviors—more so than they are to job performance. People who are happier at work, those who are more committed to their companies, and those who have overall positive attitudes toward their work situation tend to perform citizenship behaviors more often than others. When people are unhappy, they tend to be disengaged from their jobs and rarely go beyond the minimum that is expected of them.Dalal, R. S. (2005). A meta-analysis of the relationship between organizational citizenship behavior and counterproductive work behavior. Journal of Applied Psychology, 90, 1241–1255; Diefendorff, J. M., Brown, D. J., Kamin, A. M., & Lord, R. G. (2002). Examining the roles of job involvement and work centrality in predicting organizational citizenship behaviors and job performance. Journal of Organizational Behavior, 23, 93–108; Fassina, N. E., Jones, D. A., & Uggerslev, K. L. (2008). Relationship clean-up time: Using meta-analysis and path analysis to clarify relationships among job satisfaction, perceived fairness, and citizenship behaviors. Journal of Management, 34, 161–188; Hoffman, B. J., Blair, C. A., Meriac, J. P., & Woehr, D. J. (2007). Expanding the criterion domain? A quantitative review of the OCB literature. Journal of Applied Psychology, 92, 555–566; Lepine, J. A., Erez, A., & Johnson, D. E. (2002). The nature and dimensionality of organizational citizenship behavior: A critical review and meta-analysis. Journal of Applied Psychology, 87, 52–65; Organ, D. W., & Ryan, K. (1995). A meta-analytic review of attitudinal and dispositional predictors of organizational citizenship behavior. Personnel Psychology, 48, 775–802; Riketta, M. (2002). Attitudinal organizational commitment and job performance: A meta-analysis. Journal of Organizational Behavior, 23, 257–266; Riketta, M., & Van Dick, R. (2005). Foci of attachment in organizations: A meta-analytic comparison of the strength and correlates of workgroup versus organizational identification and commitment. Journal of Vocational Behavior, 67, 490–510.Interestingly, age seems to be related to the frequency with which we demonstrate citizenship behaviors. People who are older are better citizens. It is possible that with age we gain more experiences to share. It becomes easier to help others because we have more accumulated company and life experiences to draw from.Ng, T. W. H., & Feldman, D. C. (2008). The relationship of age to ten dimensions of job performance. Journal of Applied Psychology, 93, 392–423.AbsenteeismAbsenteeism refers to Unscheduled absences from work. Such absences are costly to companies because of their unpredictable nature, affecting a manager’s ability to Control the firm’s or department’s budget. When an employee has an unscheduled absence from work, companies struggle to find replacement workers at the last minute. This may involve hiring contingent workers, having other employees work overtime, or scrambling to cover for an absent coworker. The cost of absenteeism to organizations is estimated at $74 billion. According to a Mercer Human Resource consulting study, 15% of the money spent on payroll is related to absenteeism.Conlin, M. (2007, November 12). Shirking working: The war on hooky. Business Week, 4058, 72–75; Gale, S. F. (2003, September). Sickened by the cost of absenteeism, companies look for solutions. Workforce Management, 82 (9), 72–75.What causes absenteeism? First, we need to look at the type of absenteeism. Some absenteeism is unavoidable and is related to health reasons. For example, reasons such as acute or serious illness, lower back pain, migraines, accidents one may have on or off the job, or acute stress are important reasons for absenteeism.Farrell, D., & Stamm, C. L. (1988). Meta-analysis of the correlates of employee absence. Human Relations, 41, 211–227; Martocchio, J. J., Harrison, D. A., & Berkson, H. (2000). Connections between lower back pain, interventions, and absence from work: A time-based meta-analysis. Personnel Psychology, 53, 595–624. Health-related absenteeism is costly, but it would be unreasonable and unfair to institute organizational policies penalizing it. When an employee has a contagious illness, showing up at work will infect coworkers and will not be productive. If the illness is not contagious, it is still in the organization’s best interest for the employee to receive proper medical treatment and rest to promote a full recovery. Indeed, companies are finding that programs aimed at keeping workers healthy are effective in dealing with this type of absenteeism. Companies using wellness programs, educating employees about proper nutrition, helping them exercise, and rewarding them for healthy habits have reported reduced absenteeism.Parks, K. M., & Steelman, L. A. (2008). Organizational wellness programs: A meta-analysis. Journal of Occupational and Organizational Psychology, 13, 58–68.Work/life balance is another common reason for absences. Staying home to care for a sick family member, attending the wedding or funeral of a loved one, and skipping work to study for an exam are all common reasons for unscheduled absences. Companies may deal with these by giving employees more flexibility in work hours. If employees can manage their own time, they are less likely to be absent. Conversely, when a company has “sick leave” but no other leave for social and family obligations, they may fake being sick and use their “sick leave.” One solution is to have a single paid time off policy that would allow workers to balance work and life and allow companies to avoid unscheduled absences. Organizations such as Lahey Clinic at Burlington, Massachusetts, have found this to be effective in dealing with unscheduled absences. Some companies such as IBM got rid of sick leave altogether and instead allow employees to take as much time off as they need, so long as the work gets done.Cole, C. L. (2002, September). Sick of absenteeism? Get rid of sick days. Workforce, 81(9), 56–61; Conlin, M. (2007, November 12). Shirking working: The war on hooky. Business Week, 4058, 72–75; Baltes, B. B., Briggs, T. E., Huff, J. W., Wright, J. A., & Neuman, G. A. (1999). Flexible and compressed workweek schedules: A meta-analysis of their effects on work-related criteria. Journal of Applied Psychology, 84, 496–513.Sometimes, absenteeism is a form of work withdrawal and a step followed by turnover. In other words, poor work attitudes lead to absenteeism. When employees are dissatisfied with their work or have low organizational commitment, they are likely to be absent more often. Thus, absenteeism is caused by the desire to avoid an unpleasant work environment. In this case, management may deal with absenteeism by investigating the causes of dissatisfaction and dealing with them.Are there personal factors contributing to absenteeism? Research does not reveal a consistent link between personality and absenteeism, but there is one demographic criterion that predicts absenteeism: age. Interestingly, and against some stereotypes that increased age would bring more health problems, research shows that age is negatively related to both frequency and duration of absenteeism. That is, younger workers are the ones more likely to be absent. Because of reasons that include higher loyalty to their company and a stronger work ethic, older employees are less likely be absent from work.Martocchio, J. J. (1989). Age-related differences in employee absenteeism: A meta-analysis. Psychology and Aging, 4, 409–414; Ng, T. W. H., & Feldman, D. C. (2008). The relationship of age to ten dimensions of job performance. Journal of Applied Psychology, 93, 392–423.TurnoverTurnover refers to an employee’s leaving an organization. Employee turnover has potentially harmful consequences, such as poor customer service and poor company-wide performance. When employees leave, their jobs still need to be performed by someone, so companies spend time recruiting, hiring, and training new employees, all the while suffering from lower productivity. Yet, not all turnover is bad. Turnover is particularly a problem when high-performing employees leave, while a poor performer’s leaving may actually give the company a chance to improve productivity and morale.Why do employees leave? An employee’s performance level is an important reason. People who perform poorly are actually more likely to leave. These people may be fired, may be encouraged to quit, or may quit because of their fear of being fired. Particularly if a company has pay-for-performance systems, poor performers will find that they are not earning much due to their below-standard performance. This gives poor performers an extra incentive to leave. This does not mean that high performers will definitely stay with a company. High performers may find it easier to find alternative jobs, so when they are unhappy, they can leave more quickly.Work attitudes are often the primary culprit in why people leave. When workers are unhappy at work, and when they do not feel committed to their companies, they are more likely to leave. Loving the things you do, being happy with the opportunities for advancement within the company, being happy about pay are all aspects of our work attitudes relating to turnover. Of course, the link between work attitudes and turnover is not direct. When employees are unhappy, they will have the intention to leave and may start looking for a job. But their ability to actually leave will depend on many factors, such as their employability and the condition of the job market. For this reason, when national and regional unemployment is high, many people who are unhappy will still continue to work for their current company. When the economy is doing well, people will start moving to other companies in response to being unhappy. Understanding the connection between employee happiness and turnover, many companies make an effort to make employees happy. SAS Institute employees have a 35-hour workweek and enjoy amenities such as a swimming pool and child care at work. The company’s turnover is around 4%–5%, in comparison to the industry averages ranging from 12%–20%.Carsten, J. M., & Spector, P. E. (1987). Unemployment, job satisfaction, and employee turnover: A meta-analytic test of the Muchinsky model. Journal of Applied Psychology, 72, 374–381; Cohen, A. (1991). Career stage as a moderator of the relationships between organizational commitment and its outcomes: A meta-analysis. Journal of Occupational Psychology, 64, 253–268; Cohen, A. (1993). Organizational commitment and turnover: A meta-analysis. Academy of Management Journal, 36, 1140–1157; Cohen, A., & Hudecek, N. (1993). Organizational commitment—turnover relationship across occupational groups: A meta-analysis. Group & Organization Management, 18, 188–213; Griffeth, R. W., Hom, P. W., & Gaertner, S. (2000). A meta-analysis of antecedents and correlates of employee turnover: Update, moderator tests, and research implications for the next millennium. Journal of Management, 26, 463–488; Hom, P. W., Caranikas-Walker, F., Prussia, G. E., & Griffeth, R. W. (1992). A meta-analytical structural equations analysis of a model of employee turnover. Journal of Applied Psychology, 77, 890–909; Karlgaard, R. (2006, October 16). Who wants to be public? Forbes Asia, 2(17), 22; Meyer, J. P., Stanley, D. J., Herscivitch, L., & Topolnytsky, L. (2002). Affective, continuance, and normative commitment to the organization: A meta-analysis of antecedents, correlates, and consequences. Journal of Vocational Behavior, 61, 20–52; Steel, R. P., & Ovalle, N. K. (1984). A review and meta-analysis of research on the relationship between behavioral intentions and employee turnover. Journal of Applied Psychology, 69, 673–686; Tett, R. P., & Meyer, J. P. (1993). Job satisfaction, organizational commitment, turnover intentions, and turnover: Path analyses based on meta-analytic findings. Personnel Psychology, 46, 259–293.People are more likely to quit their jobs if they experience stress at work as well. Stressors such as role conflict and role ambiguity drain energy and motivate people to seek alternatives. For example, call center employees experience a great deal of stress because of poor treatment from customers, long work hours, and constant monitoring of their every action. Companies such as EchoStar realize that one method that is effective in retaining their best employees is to give them opportunities to move to higher-responsibility jobs elsewhere in the company. When a stressful job is a step toward a more desirable job, employees seem to stick around longer.Badal, J. (2006, July 24). “Career path” programs help retain workers. Wall Street Journal, B1; Griffeth, R. W., Hom, P. W., & Gaertner, S. (2000). A meta-analysis of antecedents and correlates of employee turnover: Update, moderator tests, and research implications for the next millennium. Journal of Management, 26, 463–488; Podsakoff, N. P., LePine, J. A., & LePine, M. A. (2007). Differential challenge stressor-hindrance stressor relationships with job attitudes, turnover intentions, turnover, and withdrawal behavior: A meta-analysis. Journal of Applied Psychology, 92, 438–454.There are also individual differences in whether people leave or stay. For example, personality is a factor in the decision to quit one’s job. People who are conscientious, agreeable, and emotionally stable are less likely to quit their jobs. Many explanations are possible. People with these personality traits may perform better at work, which leads to lower quit rates. Or, they may have better relations with coworkers and managers, which is a factor in their retention. Whatever the reason, it seems that some people are likely to stay longer at any given job regardless of the circumstances.Salgado, J. F. (2002). The big five personality dimensions and counterproductive behaviors. International Journal of Selection and Assessment, 10, 117–125; Zimmerman, R. D. (2008). Understanding the impact of personality traits on individuals’ turnover decisions: A meta-analytic path model. Personnel Psychology, 61, 309–348.Whether we leave a job or stay also depends on our age and how long we have been there. It seems that younger employees are more likely to leave. This is not surprising because people who are younger often have fewer responsibilities such as supporting a household or having dependents. As a result, they can quit a job they don’t like much more easily. They may also have higher expectations and thus be more easily disappointed when a job proves to be less rewarding than they had imagined. Similarly, people who have been with a company for a short period of time can quit more easily. For example, Sprint Nextel found that many of their new hires were likely to quit within 45 days of their hiring dates. When they investigated, they found that newly hired employees were experiencing a lot of stress from avoidable problems such as unclear job descriptions or problems with hooking up their computers. Sprint was able to solve the turnover problem by paying special attention to orienting new hires. New employees experience a lot of stress at work, and there is usually not much keeping them in the company such as established bonds to a manager or colleagues. New employees may even have ongoing job interviews with other companies when they start working. This, too, gives them the flexibility to leave more easily.KEY TAKEAWAYEmployees demonstrate a wide variety of positive and negative behaviors at work. Among these, four are critically important and have been extensively studied in the OB literature. Job performance is the degree of success with which one accomplishes the tasks listed in one’s job description. A person’s abilities, particularly general mental ability, are the main predictor of job performance in many occupations. How we are treated at work, the level of stress experienced at work, work attitudes, and, to a lesser extent, our personality are also factors relating to one’s job performance. Citizenship behaviors are tasks helpful to the organization that go above and beyond one’s job description. Performance of citizenship behaviors are less a function of our abilities and more of motivation. How we are treated at work, personality, work attitudes, and our age are the main predictors of citizenship. Among negative behaviors employees demonstrate, absenteeism and turnover are critically important. People who experience health problems and work/life balance issues are prone to more absenteeism. Poor work attitudes are also related to absenteeism, and younger employees are more likely to be absent from work, especially when dissatisfied. Turnover is higher among low performers, people who have negative work attitudes, and those who experience a great deal of stress. Personality and being younger are personal predictors of turnover.EXERCISESWhat is the difference between performance and organizational citizenship behaviors? As a manager, how would you improve someone’s performance? How would you increase citizenship behaviors?Are citizenship behaviors always beneficial to the company? Can you think of any citizenship behaviors employees may perform with the intention of helping a company but that may have negative consequences overall?Given the factors correlated with job performance, which employee selection methods should be better at identifying future high performers?What are the major causes of absenteeism at work? How can companies minimize the level of absenteeism that takes place?In some companies, managers are rewarded for minimizing the turnover within their department or branch. A part of their bonus is directly tied to keeping the level of turnover below a minimum. What do you think about the potential effectiveness of these programs? Do you see any downsides to such programs?2.7 Developing Your Positive Attitude SkillsLEARNING OBJECTIVESLearn to be happier at work.Leverage your attitudes for optimum work performance.Have you ever wondered how you could be happier at work and how greater work satisfaction could improve your overall effectiveness? Here are some ideas that may help you achieve a great sense of peace for yourself as well as when you are working with a negative coworker.Leverage your Big Five traits. Your personality is a big part of your happiness. Which of the Big Five positive traits are you strongest on? Be aware of them and look for opportunities to express them at work. Are you high on Neuroticism? If so, work to overcome this challenge: If you choose to find the negative side of everything, you will.Find a job and company that fit you well. Good fit with the job and company are important to your happiness. This starts with knowing yourself, your chosen career, and the particular job in question: What do you want from the job? What do you enjoy doing?Get accurate information about the job and the company. Ask detailed questions about what life is like in this company. Do your research. Read about the company; use your social network to understand the company’s culture.Develop good relationships at work. Make friends. Try to get a mentor if your company does not have a formal mentoring program. Approach a person you admire and attempt to build a relationship with this person. An experienced mentor can be a great help in navigating life at a company. Your social network can help you weather the bad days and provide you with emotional and instrumental support during your time at a company as well as afterward.Pay is important, but job characteristics matter more to your job satisfaction. So don’t sacrifice the job itself for a bit more money. When choosing a job, look at the level of challenge and the potential of the job to make you feel engaged.Be proactive in managing organizational life. If the job is stressful, cope with it by effective time management and having a good social network, as well as being proactive in getting to the source of stress. If you don’t have enough direction, ask for it!Know when to leave. If the job makes you unhappy over an extended period of time and there is little hope of solving the problems, it may be time to look elsewhere.KEY TAKEAWAYPromoting a positive work attitude will increase your overall effectiveness as a manager. You can increase your own happiness at work by knowing yourself as a person, by ensuring that you work at a job and company where you fit in, and by building effective work relationships with your manager, coworkers, and subordinates. Concentrating on the motivating potential of the job when choosing a job and solving the problems you encounter in a proactive manner may be helpful as well.EXERCISESDo you believe that your own happiness at work is in your hands? What have you done in the past to increase your own satisfaction with work?Consider the most negative person you work or interact with. Why do you think they focus more on the negative side of life?On the basis of what you have read in this chapter, can you think of ways in which you can improve your effectiveness in dealing with negative coworkers?

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Published - Fri, 10 Mar 2023

Introduction to Principles of Management - Chapter 1

Created by - Jenny Clarke

Introduction to Principles of Management - Chapter 1

Introduction to Principles of ManagementWHAT’S IN IT FOR ME?Reading this chapter will help you do the following:Learn who managers are and about the nature of their work.Know why you should care about leadership, entrepreneurship, and strategy.Know the dimensions of the planning-organizing-leading-controlling (P-O-L-C) framework.Learn how economic performance feeds social and environmental performance.Understand what performance means at the individual and group levels.Create your survivor’s guide to learning and developing principles of management.We’re betting that you already have a lot of experience with organizations, teams, and leadership. You’ve been through schools, in clubs, participated in social or religious groups, competed in sports or games, or taken on full- or part-time jobs. Some of your experience was probably pretty positive, but you were also likely wondering sometimes, “Isn’t there a better way to do this?”After participating in this course, we hope that you find the answer to be “Yes!” While management is both art and science, with our help you can identify and develop the skills essential to better managing your and others’ behaviors where organizations are concerned.Before getting ahead of ourselves, just what is management, let alone principles of management? A manager’s primary challenge is to solve problems creatively, and you should view management as “the art of getting things done through the efforts of other people.”We draw this definition from a biography of Mary Parker Follett (1868–1933) written by P. Graham, Mary Parker Follett: Prophet of Management (Boston: Harvard Business School Press, 1995). Follett was an American social worker, consultant, and author of books on democracy, human relations, and management. She worked as a management and political theorist, introducing such phrases as “conflict resolution,” “authority and power,” and “the task of leadership.” The principles of management, then, are the means by which you actually manage, that is, get things done through others—individually, in groups, or in organizations. Formally defined, the principles of management are the activities that “plan, organize, and control the operations of the basic elements of [people], materials, machines, methods, money and markets, providing direction and coordination, and giving leadership to human efforts, so as to achieve the sought objectives of the enterprise.”The fundamental notion of principles of management was developed by French management theorist Henri Fayol (1841–1925). He is credited with the original planning-organizing-leading-controlling framework (P-O-L-C), which, while undergoing very important changes in content, remains the dominant management framework in the world. See H. Fayol, General and Industrial Management (Paris: Institute of Electrical and Electronics Engineering, 1916). For this reason, principles of management are often discussed or learned using a framework called P-O-L-C, which stands for planning, organizing, leading, and controlling.Managers are required in all the activities of organizations: budgeting, designing, selling, creating, financing, accounting, and artistic presentation; the larger the organization, the more managers are needed. Everyone employed in an organization is affected by management principles, processes, policies, and practices as they are either a manager or a subordinate to a manager, and usually they are both.Managers do not spend all their time managing. When choreographers are dancing a part, they are not managing, nor are office managers managing when they personally check out a customer’s credit. Some employees perform only part of the functions described as managerial—and to that extent, they are mostly managers in limited areas. For example, those who are assigned the preparation of plans in an advisory capacity to a manager, to that extent, are making management decisions by deciding which of several alternatives to present to the management. However, they have no participation in the functions of organizing, staffing, and supervising and no control over the implementation of the plan selected from those recommended. Even independent consultants are managers, since they get most things done through others—those others just happen to be their clients! Of course, if advisers or consultants have their own staff of subordinates, they become a manager in the fullest sense of the definition. They must develop business plans; hire, train, organize, and motivate their staff members; establish internal policies that will facilitate the work and direct it; and represent the group and its work to those outside of the firm.1.1 Case in Point: Doing Good as a Core Business StrategyGoodwill Industries International (a nonprofit organization) has been an advocate of diversity for over 100 years. In 1902, in Boston, Massachusetts, a young missionary set up a small operation enlisting struggling immigrants in his parish to clean and repair clothing and goods to later sell. This provided workers with the opportunity for basic education and language training. His philosophy was to provide a “hand up,” not a “hand out.” Although today you can find retail stores in over 2,300 locations worldwide, and in 2009 more than 64 million people in the United States and Canada donated to Goodwill, the organization has maintained its core mission to respect the dignity of individuals by eliminating barriers to opportunity through the power of work. Goodwill accomplishes this goal, in part, by putting 84% of its revenue back into programs to provide employment, which in 2008 amounted to $3.23 billion. As a result of these programs, every 42 seconds of every business day, someone gets a job and is one step closer to achieving economic stability.Goodwill is a pioneer of social enterprise and has managed to build a culture of respect through its diversity programs. If you walk into a local Goodwill retail store you are likely to see employees from all walks of life, including differences in gender and race, physical ability, sexual orientation, and age. Goodwill provides employment opportunities for individuals with disabilities, lack of education, or lack of job experience. The company has created programs for individuals with criminal backgrounds who might otherwise be unable to find employment, including basic work skill development, job placement assistance, and life skills. In 2008, more than 172,000 people obtained employment, earning $2.3 billion in wages and gaining tools to be productive members of their community. Goodwill has established diversity as an organizational norm, and as a result, employees are comfortable addressing issues of stereotyping and discrimination. In an organization of individuals with such wide-ranging backgrounds, it is not surprising that there are a wide range of values and beliefs.Management and operations are decentralized within the organization with 166 independent community-based Goodwill stores. These regional businesses are independent, not-for-profit human services organizations. Despite its decentralization, the company has managed to maintain its core values. Seattle’s Goodwill is focused on helping the city’s large immigrant population and those individuals without basic education and English language skills. And at Goodwill Industries of Kentucky, the organization recently invested in custom software to balance daily sales at stores to streamline operations so managers can spend less time on paperwork and more time managing employees.Part of Goodwill’s success over the years can be attributed to its ability to innovate. As technology evolves and such skills became necessary for most jobs, Goodwill has developed training programs to ensure that individuals are fully equipped to be productive members of the workforce, and in 2008 Goodwill was able to provide 1.5 million people with career services. As an organization, Goodwill itself has entered into the digital age. You can now find Goodwill on Facebook, Twitter, and YouTube. Goodwill’s business practices encompass the values of the triple bottom line of people, planet, and profit. The organization is taking advantage of new green initiatives and pursuing opportunities for sustainability. For example, at the beginning of 2010, Goodwill received a $7.3 million grant from the U.S. Department of Labor, which will provide funds to prepare individuals to enter the rapidly growing green industry of their choice. Oregon’s Goodwill Industries has partnered with the Oregon Department of Environmental Quality and its Oregon E-Cycles program to prevent the improper disposal of electronics. Goodwill discovered long ago that diversity is an advantage rather than a hindrance.Case written by [citation redacted per publisher request]. Based on information from Goodwill Industries of North Central Wisconsin. (2009). A brief history of Goodwill Industries International. Retrieved March 3, 2010, from http://www.goodwillncw.org/goodwillhistory1.htm; Walker, R. (2008, November 2). Consumed: Goodwill hunting. New York Times Magazine, p. 18; Tabafunda, J. (2008, July 26). After 85 years, Seattle Goodwill continues to improve lives. Northwest Asian Weekly. Retrieved March 1, 2010, from http://www.nwasianweekly.com/old/2008270031/goodwill20082731.htm; Slack, E. (2009). Selling hope. Retail Merchandiser, 49(1), 89–91; Castillo, L. (2009, February 24). Goodwill Industries offers employment programs. Clovis News Journal. Retrieved April 22, 2010, from http://www.cnjonline.com/news/industries-32474-goodwill-duttweiler.html; Information retrieved April 22, 2010, from the Oregon E-Cycles Web site: http://www.deq.state.or.us/lq/ecycle.DISCUSSION QUESTIONSHow might the implications of the P-O-L-C framework differ for an organization like Goodwill Industries versus a firm like Starbucks?What are Goodwill’s competitive advantages?Goodwill has found success in the social services. What problems might result from hiring and training the diverse populations that Goodwill is involved with?Have you ever experienced problems with discrimination in a work or school setting?Why do you think that Goodwill believes it necessary to continually innovate?1.2 Who Are Managers?LEARNING OBJECTIVESKnow what is meant by “manager”.Be able to describe the types of managers.Understand the nature of managerial work.ManagersWe tend to think about managers based on their position in an organization. This tells us a bit about their role and the nature of their responsibilities. The following figure summarizes the historic and contemporary views of organizations with respect to managerial roles.S. Ghoshal and C. Bartlett, The Individualized Corporation: A Fundamentally New Approach to Management (New York: Collins Business, 1999). In contrast to the traditional, hierarchical relationship among layers of management and managers and employees, in the contemporary view, top managers support and serve other managers and employees (through a process called empowerment), just as the organization ultimately exists to serve its customers and clients. Empowerment is the process of enabling or authorizing an individual to think, behave, take action, and control work and decision making in autonomous ways.In both the traditional and contemporary views of management, however, there remains the need for different types of managers. Top managers are responsible for developing the organization’s strategy and being a steward for its vision and mission. A second set of managers includes functional, team, and general managers. Functional managers are responsible for the efficiency and effectiveness of an area, such as accounting or marketing. Supervisory or team managers are responsible for coordinating a subgroup of a particular function or a team composed of members from different parts of the organization. Sometimes you will hear distinctions made between line and staff managers.A line manager leads a function that contributes directly to the products or services the organization creates. For example, a line manager (often called a product, or service manager) at Procter & Gamble (P&G) is responsible for the production, marketing, and profitability of the Tide detergent product line. A staff manager, in contrast, leads a function that creates indirect inputs. For example, finance and accounting are critical organizational functions but do not typically provide an input into the final product or service a customer buys, such as a box of Tide detergent. Instead, they serve a supporting role. A project manager has the responsibility for the planning, execution, and closing of any project. Project managers are often found in construction, architecture, consulting, computer networking, telecommunications, or software development.A general manager is someone who is responsible for managing a clearly identifiable revenue-producing unit, such as a store, business unit, or product line. General managers typically must make decisions across different functions and have rewards tied to the performance of the entire unit (i.e., store, business unit, product line, etc.). General managers take direction from their top executives. They must first understand the executives’ overall plan for the company. Then they set specific goals for their own departments to fit in with the plan. The general manager of production, for example, might have to increase certain product lines and phase out others. General managers must describe their goals clearly to their support staff. The supervisory managers see that the goals are met.Figure 1.4 The Changing Roles of Management and ManagersThe Nature of Managerial WorkManagers are responsible for the processes of getting activities completed efficiently with and through other people and setting and achieving the firm’s goals through the execution of four basic management functions: planning, organizing, leading, and controlling. Both sets of processes utilize human, financial, and material resources.Of course, some managers are better than others at accomplishing this! There have been a number of studies on what managers actually do, the most famous of those conducted by Professor Henry Mintzberg in the early 1970s.H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973). One explanation for Mintzberg’s enduring influence is perhaps that the nature of managerial work has changed very little since that time, aside from the shift to an empowered relationship between top managers and other managers and employees, and obvious changes in technology, and the exponential increase in information overload.After following managers around for several weeks, Mintzberg concluded that, to meet the many demands of performing their functions, managers assume multiple roles. A role is an organized set of behaviors, and Mintzberg identified 10 roles common to the work of all managers. As summarized in the following figure, the 10 roles are divided into three groups: interpersonal, informational, and decisional. The informational roles link all managerial work together. The interpersonal roles ensure that information is provided. The decisional roles make significant use of the information. The performance of managerial roles and the requirements of these roles can be played at different times by the same manager and to different degrees, depending on the level and function of management. The 10 roles are described individually, but they form an integrated whole.The three interpersonal roles are primarily concerned with interpersonal relationships. In the figurehead role, the manager represents the organization in all matters of formality. The top-level manager represents the company legally and socially to those outside of the organization. The supervisor represents the work group to higher management and higher management to the work group. In the liaison role, the manager interacts with peers and people outside the organization. The top-level manager uses the liaison role to gain favors and information, while the supervisor uses it to maintain the routine flow of work. The leader role defines the relationships between the manager and employees.Figure 1.5 Ten Managerial RolesThe direct relationships with people in the interpersonal roles place the manager in a unique position to get information. Thus, the three informational roles are primarily concerned with the information aspects of managerial work. In the monitor role, the manager receives and collects information. In the role of disseminator, the manager transmits special information into the organization. The top-level manager receives and transmits more information from people outside the organization than the supervisor. In the role of spokesperson, the manager disseminates the organization’s information into its environment. Thus, the top-level manager is seen as an industry expert, while the supervisor is seen as a unit or departmental expert.The unique access to information places the manager at the center of organizational decision making. There are four decisional roles managers play. In the entrepreneur role, the manager initiates change. In the disturbance handler role, the manager deals with threats to the organization. In the resource allocator role, the manager chooses where the organization will expend its efforts. In the negotiator role, the manager negotiates on behalf of the organization. The top-level manager makes the decisions about the organization as a whole, while the supervisor makes decisions about his or her particular work unit.The supervisor performs these managerial roles but with different emphasis than higher managers. Supervisory management is more focused and short-term in outlook. Thus, the figurehead role becomes less significant and the disturbance handler and negotiator roles increase in importance for the supervisor. Since leadership permeates all activities, the leader role is among the most important of all roles at all levels of management.So what do Mintzberg’s conclusions about the nature of managerial work mean for you? On the one hand, managerial work is the lifeblood of most organizations because it serves to choreograph and motivate individuals to do amazing things. Managerial work is exciting, and it is hard to imagine that there will ever be a shortage of demand for capable, energetic managers. On the other hand, managerial work is necessarily fast-paced and fragmented, where managers at all levels express the opinion that they must process much more information and make more decisions than they could have ever possibly imagined. So, just as the most successful organizations seem to have well-formed and well-executed strategies, there is also a strong need for managers to have good strategies about the way they will approach their work. This is exactly what you will learn through principles of management.KEY TAKEAWAYManagers are responsible for getting work done through others. We typically describe the key managerial functions as planning, organizing, leading, and controlling. The definitions for each of these have evolved over time, just as the nature of managing in general has evolved over time. This evolution is best seen in the gradual transition from the traditional hierarchical relationship between managers and employees, to a climate characterized better as an upside-down pyramid, where top executives support middle managers and they, in turn, support the employees who innovate and fulfill the needs of customers and clients. Through all four managerial functions, the work of managers ranges across 10 roles, from figurehead to negotiator. While actual managerial work can seem challenging, the skills you gain through principles of management—consisting of the functions of planning, organizing, leading, and controlling—will help you to meet these challenges.EXERCISESWhy do organizations need managers?What are some different types of managers and how do they differ?What are Mintzberg’s 10 managerial roles?What three areas does Mintzberg use to organize the 10 roles?What four general managerial functions do principles of management include?1.3 Leadership, Entrepreneurship, and StrategyLEARNING OBJECTIVESKnow the roles and importance of leadership, entrepreneurship, and strategy in principles of management.Understand how leadership, entrepreneurship, and strategy are interrelated.The principles of management are drawn from a number of academic fields, principally, the fields of leadership, entrepreneurship, and strategy.LeadershipIf management is defined as getting things done through others, then leadership should be defined as the social and informal sources of influence that you use to inspire action taken by others. It means mobilizing others to want to struggle toward a common goal. Great leaders help build an organization’s human capital, then motivate individuals to take concerted action. Leadership also includes an understanding of when, where, and how to use more formal sources of authority and power, such as position or ownership. Increasingly, we live in a world where good management requires good leaders and leadership. While these views about the importance of leadership are not new (see “Views on Managers Versus Leaders”), competition among employers and countries for the best and brightest, increased labor mobility (think “war for talent” here), and hypercompetition puts pressure on firms to invest in present and future leadership capabilities.P&G provides a very current example of this shift in emphasis to leadership as a key principle of management. For example, P&G recruits and promotes those individuals who demonstrate success through influence rather than direct or coercive authority. Internally, there has been a change from managers being outspoken and needing to direct their staff, to being individuals who electrify and inspire those around them. Good leaders and leadership at P&G used to imply having followers, whereas in today’s society, good leadership means followership and bringing out the best in your peers. This is one of the key reasons that P&G has been consistently ranked among the top 10 most admired companies in the United States for the last three years, according to Fortune magazine.Ranking of Most Admired Firms for 2006, 2007, 2008. http://www.fortune.com (accessed October 15, 2008).Whereas P&G has been around for some 170 years, another winning firm in terms of leadership is Google, which has only been around for little more than a decade. Both firms emphasize leadership in terms of being exceptional at developing people. Google has topped Fortune’s 100 Best Companies to Work for the past two years. Google’s founders, Sergey Brin and Larry Page, built a company around the idea that work should be challenging and the challenge should be fun.http://www.google.com/intl/en/corporate/tenthings.html (accessed October 15, 2008). Google’s culture is probably unlike any in corporate America, and it’s not because of the ubiquitous lava lamps throughout the company’s headquarters or that the company’s chef used to cook for the Grateful Dead. In the same way Google puts users first when it comes to online service, Google espouses that it puts employees first when it comes to daily life in all of its offices. There is an emphasis on team achievements and pride in individual accomplishments that contribute to the company’s overall success. Ideas are traded, tested, and put into practice with a swiftness that can be dizzying. Observers and employees note that meetings that would take hours elsewhere are frequently little more than a conversation in line for lunch and few walls separate those who write the code from those who write the checks. This highly communicative environment fosters a productivity and camaraderie fueled by the realization that millions of people rely on Google results. Leadership at Google amounts to a deep belief that if you give the proper tools to a group of people who like to make a difference, they will.Views on Managers Versus LeadersMy definition of a leader…is a man who can persuade people to do what they don’t want to do, or do what they’re too lazy to do, and like it.Harry S. Truman (1884–1972), 33rd president of the United StatesYou cannot manage men into battle. You manage things; you lead people.Grace Hopper (1906–1992), Admiral, U.S. NavyManagers have subordinates—leaders have followers.Chester Bernard (1886–1961), former executive and author of Functions of the ExecutiveThe first job of a leader is to define a vision for the organization…Leadership is the capacity to translate vision into reality.Warren Bennis (1925–), author and leadership scholarA manager takes people where they want to go. A great leader takes people where they don’t necessarily want to go but ought to.Rosalynn Carter (1927–), First Lady of the United States, 1977–1981EntrepreneurshipIt’s fitting that this section on entrepreneurship follows the discussion of Google. Entrepreneurship is defined as the recognition of opportunities (needs, wants, problems, and challenges) and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures. Perhaps this is obvious, but an entrepreneur is a person who engages in the process of entrepreneurship. We describe entrepreneurship as a process because it often involves more than simply coming up with a good idea—someone also has to convert that idea into action. As an example of both, Google’s leaders suggest that its point of distinction “is anticipating needs not yet articulated by our global audience, then meeting them with products and services that set new standards. This constant dissatisfaction with the way things are is ultimately the driving force behind the world’s best search engine.” http://www.google.com/intl/en/corporate/tenthings.html (accessed October 15, 2008).Entrepreneurs and entrepreneurship are the catalysts for value creation. They identify and create new markets, as well as foster change in existing ones. However, such value creation first requires an opportunity. Indeed, the opportunity-driven nature of entrepreneurship is critical. Opportunities are typically characterized as problems in search of solutions, and the best opportunities are big problems in search of big solutions. “The greater the inconsistencies in existing service and quality, in lead times and in lag times, the greater the vacuums and gaps in information and knowledge, the greater the opportunities.” J. Timmons, The Entrepreneurial Process (New York: McGraw-Hill, 1999), 39. In other words, bigger problems will often mean there will be a bigger market for the product or service that the entrepreneur creates. We hope you can see why the problem-solving, opportunity-seeking nature of entrepreneurship is a fundamental building block for effective principles of management.StrategyWhen an organization has a long-term purpose, articulated in clear goals and objectives, and these goals and objectives can be rolled up into a coherent plan of action, then we would say that the organization has a strategy. It has a good or even great strategy when this plan also takes advantage of unique resources and capabilities to exploit a big and growing external opportunity. Strategy then, is the central, integrated, externally-oriented concept of how an organization will achieve its objectives.D. Hambrick and J. Fredrickson, “Are You Sure You Have a Strategy?” Academy of Management Executive 15, no. 4 (2001): 2. Strategic management is the body of knowledge that answers questions about the development and implementation of good strategies.Strategic management is important to all organizations because, when correctly formulated and communicated, strategy provides leaders and employees with a clear set of guidelines for their daily actions. This is why strategy is so critical to the principles of management you are learning about. Simply put, strategy is about making choices: What do I do today? What shouldn’t I be doing? What should my organization be doing? What should it stop doing?Synchronizing Leadership, Entrepreneurship, and StrategyYou know that leadership, entrepreneurship, and strategy are the inspiration for important, valuable, and useful principles of management. Now you will want to understand how they might relate to one another. In terms of principles of management, you can think of leadership, entrepreneurship, and strategic management as answering questions about “who,” “what,” and “how.” Leadership helps you understand who helps lead the organization forward and what the critical characteristics of good leadership might be. Entrepreneurial firms and entrepreneurs in general are fanatical about identifying opportunities and solving problems—for any organization, entrepreneurship answers big questions about “what” an organization’s purpose might be. Finally, strategic management aims to make sure that the right choices are made—specifically, that a good strategy is in place—to exploit those big opportunities.One way to see how leadership, entrepreneurship, and strategy come together for an organization—and for you—is through a recent (disguised) job posting from Craigslist. Look at the ideal candidate characteristics identified in the Help Wanted ad—you don’t have to look very closely to see that if you happen to be a recent business undergrad, then the organization depicted in the ad is looking for you. The posting identifies a number of areas of functional expertise for the target candidate. You can imagine that this new position is pretty critical for the success of the business. For that reason, we hope you are not surprised to see that, beyond functional expertise, this business seeks someone with leadership, entrepreneurial, and strategic orientation and skills. Now you have a better idea of what those key principles of management involve.Help Wanted—Chief of StaffWe’re hiring a chief of staff to bring some order to the mayhem of our firm’s growth. You will touch everything at the company, from finance to sales, marketing to operations, recruiting to human resources, accounting to investor relations. You will report directly to the CEO.Here’s what you’re going to be asked to do across a range of functional areas in the first 90 days, before your job evolves into a whole new set of responsibilities:MarketingLeverage our existing customer base using best-in-class direct marketing campaigns via e-mail, phone, Web, and print or mail communications.Convert our current customer spreadsheet and database into a highly functional, lean customer relationship management (CRM) system—we need to build the infrastructure to service and reach out to customers for multiple users.Be great at customer service personally—excelling in person and on the phone, and you will help us build a Ninja certification system for our employees and partners to be like you.Build our Web-enabled direct sales force, requiring a lot of strategic work, sales-force incentive design and experimentation, and rollout of Web features to support the direct channel.SalesBe great at demonstrating our product in the showroom, as well as at your residence and in the field—plan to be one of the top sales reps on the team (and earn incremental variable compensation for your efforts).Finance and AccountingBuild our financial and accounting structures and processes, take over QuickBooks, manage our team of accountants, hire additional resources as needed, and get that profit and loss statement (P&L) rocking.Figure out when we should pay our bills and manage team members to get things paid on time and manage our working capital effectively.Track our actual revenues and expenses against your own projection—you will be building and running our financial model.OperationsWe are building leading-edge capabilities on returns, exchanges, and shipping—you will help guide strategic thinking on operational solutions and will implement them with our operations manager.We are looking for new headquarters, you may help identify, build out, and launch.HR and RecruitingWe are recruiting a team of interns—you will take the lead on the program, and many or all of them will report to you; you will be an ombudsman of sorts for our summer program.The company has a host of HR needs that are currently handled by the CEO and third parties; you will take over many of these.Production and Product DevelopmentThe company is actively recruiting a production assistant/manager—in the meanwhile, there are a number of Web-facing and vendor-facing activities you will pitch in on.The Ideal Candidate Is…a few years out of college but is at least two or three years away from going to business or other graduate school;charismatic and is instantly likeable to a wide variety of people, driven by sparkling wit, a high degree of extraversion, and a balanced mix of self-confidence and humility;able to read people quickly and knows how to treat people accordingly;naturally compassionate and demonstrates strong empathy, easily thinking of the world from the perspective of another person;an active listener and leaves people with the sense that they are well heard;exceptionally detail-oriented and has a memory like a steel trap—nothing falls through the cracks;razor sharp analytically, aced the math section of their SAT test, and excels at analyzing and solving problems;a perfectionist and keeps things in order with ease.KEY TAKEAWAYThe principles of management are drawn from three specific areas—leadership, entrepreneurship, and strategic management. You learned that leadership helps you understand who helps lead the organization forward and what the critical characteristics of good leadership might be. Entrepreneurs are fanatical about identifying opportunities and solving problems—for any organization, entrepreneurship answers big questions about “what” an organization’s purpose might be. Finally, as you’ve already learned, strategic management aims to make sure that the right choices are made—specifically, that a good strategy is in place—to exploit those big opportunities.EXERCISESHow do you define leadership, and who would you identify as a great leader?What is entrepreneurship?What is strategy?What roles do leadership, entrepreneurship, and strategy play in good principles of management?1.4 Planning, Organizing, Leading, and ControllingLEARNING OBJECTIVESKnow the dimensions of the planning-organizing-leading-controlling (P-O-L-C) framework.Know the general inputs into each P-O-L-C dimension.A manager’s primary challenge is to solve problems creatively. While drawing from a variety of academic disciplines, and to help managers respond to the challenge of creative problem solving, principles of management have long been categorized into the four major functions of planning, organizing, leading, and controlling (the P-O-L-C framework). The four functions, summarized in the P-O-L-C figure, are actually highly integrated when carried out in the day-to-day realities of running an organization. Therefore, you should not get caught up in trying to analyze and understand a complete, clear rationale for categorizing skills and practices that compose the whole of the P-O-L-C framework.It is important to note that this framework is not without criticism. Specifically, these criticisms stem from the observation that the P-O-L-C functions might be ideal but that they do not accurately depict the day-to-day actions of actual managers.H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973); D. Lamond, “A Matter of Style: Reconciling Henri and Henry,” Management Decision 42, no. 2 (2004): 330–56. The typical day in the life of a manager at any level can be fragmented and hectic, with the constant threat of having priorities dictated by the law of the trivial many and important few (i.e., the 80/20 rule). However, the general conclusion seems to be that the P-O-L-C functions of management still provide a very useful way of classifying the activities managers engage in as they attempt to achieve organizational goals.D. Lamond, “A Matter of Style: Reconciling Henri and Henry,” Management Decision 42, no. 2 (2004): 330–56.Figure 1.7 The P-O-L-C FrameworkPlanningPlanning is the function of management that involves setting objectives and determining a course of action for achieving those objectives. Planning requires that managers be aware of environmental conditions facing their organization and forecast future conditions. It also requires that managers be good decision makers.Planning is a process consisting of several steps. The process begins with environmental scanning which simply means that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the basis for planning.Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take corrective action when necessary.There are many different types of plans and planning.Strategic planning involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of the organization, and then determining how to position the organization to compete effectively in their environment. Strategic planning has a long time frame, often three years or more. Strategic planning generally includes the entire organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission, which is its fundamental reason for existence. An organization’s top management most often conducts strategic planning.Tactical planning is intermediate-range (one to three years) planning that is designed to develop relatively concrete and specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.Operational planning generally assumes the existence of organization-wide or subunit goals and objectives and specifies ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific action steps that support the strategic and tactical plans.OrganizingOrganizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as organizational design decisions.Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally, job design was based on principles of division of labor and specialization, which assumed that the more narrow the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.Recently, many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment, job enrichment and teamwork. For example, HUI Manufacturing, a custom sheet metal fabricator, has done away with traditional “departments” to focus on listening and responding to customer needs. From company-wide meetings to team huddles, HUI employees know and understand their customers and how HUI might service them best.http://www.huimfg.com/abouthui-yourteams.aspx (accessed October 15, 2008).LeadingLeading involves the social and informal sources of influence that you use to inspire action taken by others. If managers are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational objectives.The behavioral sciences have made many contributions to understanding this function of management. Personality research and studies of job attitudes provide important information as to how managers can most effectively lead subordinates. For example, this research tells us that to become effective at leading, managers must first understand their subordinates’ personalities, values, attitudes, and emotions.Studies of motivation and motivation theory provide important information about the ways in which workers can be energized to put forth productive effort. Studies of communication provide direction as to how managers can effectively and persuasively communicate. Studies of leadership and leadership style provide information regarding questions, such as, “What makes a manager a good leader?” and “In what situations are certain leadership styles most appropriate and effective?”ControllingControlling involves ensuring that performance does not deviate from standards. Controlling consists of three steps, which include (1) establishing performance standards, (2) comparing actual performance against standards, and (3) taking corrective action when necessary. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service.The measurement of performance can be done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree.The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the accomplishment of organizational and departmental objectives.Effective controlling requires the existence of plans, since planning provides the necessary performance standards or objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies. Two traditional control techniques are budget and performance audits. An audit involves an examination and verification of records and supporting documents. A budget audit provides information about where the organization is with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial criteria, managers must also control production and operations processes, procedures for delivery of services, compliance with company policies, and many other activities within the organization.The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of management. Although there have been tremendous changes in the environment faced by managers and the tools used by managers to perform their roles, managers still perform these essential functions.KEY TAKEAWAYThe principles of management can be distilled down to four critical functions. These functions are planning, organizing, leading, and controlling. This P-O-L-C framework provides useful guidance into what the ideal job of a manager should look like.EXERCISESWhat are the management functions that comprise the P-O-L-C framework?Are there any criticisms of this framework?What function does planning serve?What function does organizing serve?What function does leading serve?What function does controlling serve?1.5 Economic, Social, and Environmental PerformanceLEARNING OBJECTIVESBe able to define economic, social, and environmental performance.Understand how economic performance is related to social and environmental performance.Webster’s dictionary defines performance as “the execution of an action” and “something accomplished.”http://www.merriam-webster.com/dictionary/performance (accessed October 15, 2008). Principles of management help you better understand the inputs into critical organizational outcomes like a firm’s economic performance. Economic performance is very important to a firm’s stakeholders particularly its investors or owners, because this performance eventually provides them with a return on their investment. Other stakeholders, like the firm’s employees and the society at large, are also deemed to benefit from such performance, albeit less directly. Increasingly though, it seems clear that noneconomic accomplishments, such as reducing waste and pollution, for example, are key indicators of performance as well. Indeed, this is why the notion of the triple bottom line is gaining so much attention in the business press. Essentially, the triple bottom line refers to The measurement of business performance along social, environmental, and economic dimensions. We introduce you to economic, social, and environmental performance and conclude the section with a brief discussion of the interdependence of economic performance with other forms of performance.Economic PerformanceIn a traditional sense, the economic performance of a firm is a function of its success in producing benefits for its owners in particular, through product innovation and the efficient use of resources. When you talk about this type of economic performance in a business context, people typically understand you to be speaking about some form of profit.The definition of economic profit is the difference between revenue and the opportunity cost of all resources used to produce the items sold.W. P. Albrecht, Economics (Englewood Cliffs, NJ: Prentice Hall, 1983). This definition includes implicit returns as costs. For our purposes, it may be simplest to think of economic profit as a form of accounting profit where profits are achieved when revenues exceed the accounting cost the firm “pays” for those inputs. In other words, your organization makes a profit when its revenues are more than its costs in a given period of time, such as three months, six months, or a year.Before moving on to social and environmental performance, it is important to note that customers play a big role in economic profits. Profits accrue to firms because customers are willing to pay a certain price for a product or service, as opposed to a competitor’s product or service of a higher or lower price. If customers are only willing to make purchases based on price, then a firm, at least in the face of competition, will only be able to generate profit if it keeps its costs under control.Social and Environmental PerformanceYou have learned a bit about economic performance and its determinants. For most organizations, you saw that economic performance is associated with profits, and profits depend a great deal on how much customers are willing to pay for a good or service.With regard to social and environmental performance, it is similarly useful to think of them as forms of profit—social and environmental profit to be exact. Increasingly, the topics of social and environmental performance have garnered their own courses in school curricula; in the business world, they are collectively referred to as corporate social responsibility (CSR)CSR is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities, and the environment in all aspects of their operations. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families, as well as for the local community and society at large.Two companies that have long blazed a trail in CSR are Ben & Jerry’s and S. C. Johnson. Their statements about why they do this, summarized in Table 1.1 "Examples of leading firms with strong CSR orientations", capture many of the facets just described.Table 1.1 Examples of leading firms with strong CSR orientationsWhy We Do It?Ben & Jerry’s“We’ve taken time each year since 1989 to compile this [Social Audit] report because we continue to believe that it keeps us in touch with our Company’s stated Social Mission. By raising the profile of social and environmental matters inside the Company and recording the impact of our work on the community, this report aids us in our search for business decisions that support all three parts of our Company Mission Statement: Economic, Product, and Social. In addition, the report is an important source of information about the Company for students, journalists, prospective employees, and other interested observers. In this way, it helps us in our quest to keep our values, our actions, and public perceptions in alignment.”http://www.benjerrys.com/our_company/about_us/social_mission/social_audits (accessed October 15, 2008).S. C. Johnson“It’s nice to live next door to a family that cares about its neighbors, and at S. C. Johnson we are committed to being a good neighbor and contributing to the well-being of the countries and the communities where we conduct business. We have a wide variety of efforts to drive global development and growth that benefit the people around us and the planet we all share. From exceptional philanthropy and volunteerism to new business models that bring economic growth to the world’s poorest communities, we’re helping to create stronger communities for families around the globe.”http://www.scjohnson.com/community (accessed October 15, 2008).Figure 1.9Environmentally Neutral Design (END) designs shoes with the goal of eliminating the surplus material needed to make a shoe such that it costs less to make and is lighter than other performance shoes on the market.Photo used with permission of Environmentally Neutral Design (END).Integrating Economic, Social, and Environmental PerformanceIs there really a way to achieve a triple bottom line in a way that actually builds up all three facets of performance—economic, social, and environmental? Advocates of CSR understandably argue that this is possible and should be the way all firms are evaluated. Increasingly, evidence is mounting that attention to a triple bottom line is more than being “responsible” but instead just good business. Critics argue that CSR detracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window dressing; still, others argue that it is an attempt to preempt the role of governments as a watchdog over powerful multinational corporations.While there is no systematic evidence supporting such a claim, a recent review of nearly 170 research studies on the relationship between CSR and firm performance reported that there appeared to be no negative shareholder effects of such practices. In fact, this report showed that there was a small positive relationship between CSR and shareholder returns.J. Margolis and Hillary H. Elfenbein, “Doing well by Doing Good? Don’t Count on It,” Harvard Business Review 86 (2008): 1–2. Similarly, companies that pay good wages and offer good benefits to attract and retain high-caliber employees “are not just being socially responsible; they are merely practicing good management.”R. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Knopf, 2007).The financial benefits of social or environmental CSR initiatives vary by context. For example, environment-friendly strategies are much more complicated in the consumer products and services market. For example, cosmetics retailer The Body Shop and StarKist Seafood Company, a strategic business unit of Heinz Food, both undertook environmental strategies but only the former succeeded. The Body Shop goes to great lengths to ensure that its business is ecologically sustainable.http://www.bodyshop.com (accessed October 15, 2008). It actively campaigns against human rights abuses and for animal and environmental protection and is one of the most respected firms in the world, despite its small size. Consumers pay premium prices for Body Shop products, ostensibly because they believe that it simply costs more to provide goods and services that are environmentally friendly. The Body Shop has been wildly successful.StarKist, too, adopted a CSR approach, when, in 1990, it decided to purchase and sell exclusively dolphin-safe tuna. At the time, biologists thought that the dolphin population decline was a result of the thousands killed in the course of tuna harvests. However, consumers were unwilling to pay higher prices for StarKist’s environmental product attributes. Moreover, since tuna were bought from commercial fishermen, this particular practice afforded the firm no protection from imitation by competitors. Finally, in terms of credibility, the members of the tuna industry had launched numerous unsuccessful campaigns in the past touting their interest in the environment, particularly the world’s oceans. Thus, consumers did not perceive StarKist’s efforts as sincerely “green.”You might argue that The Body Shop’s customers are unusually price insensitive, hence the success of its environment-based strategy. However, individuals are willing to pay more for organic produce, so why not dolphin-safe tuna? One difference is that while the environment is a public good, organic produce produces both public and private benefits. For example, organic farming is better for the environment and pesticide-free produce is believed to be better for the health of the consumer. Dolphin-free tuna only has the public environmental benefits (i.e., preserve the dolphin population and oceans’ ecosystems), not the private ones like personal health. It is true that personal satisfaction and benevolence are private benefits, too. However, consumers did not believe they were getting their money’s worth in this regard for StarKist tuna, whereas they do with The Body Shop’s products.Somewhere in our dialogue on CSR lies the idea of making the solution of an environmental or social problem the primary purpose of the organization. Cascade Asset Management (CAM), is a case in point.http://www.cascade-assets.com (accessed October 15, 2008). CAM was created in April 1999, in Madison, Wisconsin, and traces its beginnings to the University of Wisconsin’s Entrepreneurship program where the owners collaborated on developing and financing the initial business plan. CAM is a private, for-profit enterprise established to provide for the environmentally responsible disposition of computers and other electronics generated by businesses and institutions in Wisconsin. With their experience and relationships in surplus asset disposition and computer hardware maintenance, the founders were able to apply their skills and education to this new and developing industry.Firms are willing to pay for CAM’s services because the disposal of surplus personal computers (PCs) is recognized as risky and highly regulated, given the many toxic materials embedded in most components. CAM’s story is also credible (whereas StarKist had trouble selling its CSR story). The company was one of the original signers of the “Electronic Recyclers Pledge of True Stewardship.”http://www.computertakeback.com/the_solutions/recycler_s_pledge.cfm (accessed October 15, 2008). Signers of the pledge are committed to the highest standards of environmental and economic sustainability in their industry and are expected to live out this commitment through their operations and partnerships. The basic principles of the pledge are as follows: no export of untested whole products or hazardous components or commodities (CRTs, circuit boards) to developing countries, no use of prison labor, adherence to an environmental and worker safety management system, provision of regular testing and audits to ensure compliance, and support efforts to encourage producers to make their products less toxic. CAM has grown rapidly and now serves over 500 business and institutional customers from across the country. While it is recognized as one of the national leaders in responsible, one-stop information technology (IT) asset disposal, its success is attracting new entrants such as IBM, which view PC recycling as another profitable service they can offer their existing client base.Search on “asset disposal solutions” at http://www.ibm.com/ibm/environment/ (accessed October 15, 2008).KEY TAKEAWAYOrganizational performance can be viewed along three dimensions—financial, social, and environmental—collectively referred to as the triple bottom line, where the latter two dimensions are included in the definition of CSR. While there remains debate about whether organizations should consider environmental and social impacts when making business decisions, there is increasing pressure to include such CSR activities in what constitutes good principles of management. This pressure is based on arguments that range from CSR helps attract and retain the best and brightest employees, to showing that the firm is being responsive to market demands, to observations about how some environmental and social needs represent great entrepreneurial business opportunities in and of themselves.EXERCISESWhy is financial performance important for organizations?What are some examples of financial performance metrics?What dimensions of performance beyond financial are included in the triple bottom line?How does CSR relate to the triple bottom line?How are financial performance and CSR related?1.6 Performance of Individuals and GroupsLEARNING OBJECTIVESUnderstand the key dimensions of individual-level performance.Understand the key dimensions of group-level performance.Know why individual- and group-level performance goals need to be compatible.Principles of management are concerned with organization-level outcomes such as economic, social, or environmental performance, innovation, or ability to change and adapt. However, for something to happen at the level of an organization, something must typically also be happening within the organization at the individual or team level. Obviously, if you are an entrepreneur and the only person employed by your company, the organization will accomplish what you do and reap the benefits of what you create. Normally though, organizations have more than one person, which is why we introduce to you concepts of individual and group performance.Individual-Level PerformanceIndividual-level performance draws upon those things you have to do in your job, or in-role performance, and those things that add value but which aren’t part of your formal job description. These “extras” are called extra-role performance or organizational citizenship behaviors (OCBs). At this point, it is probably simplest to consider an in-role performance as having productivity and quality dimensions associated with certain standards that you must meet to do your job. In contrast, OCBs can be understood as individual behaviors that are beneficial to the organization and are discretionary, not directly or explicitly recognized by the formal reward system.D. W. Organ, Organizational Citizenship Behavior: The Good Soldier Syndrome (Lexington, M Lexington Books, 1988).In comparison to in-role performance, the spectrum of what constitutes extra-role performance, or OCBs, seems be great and growing. In a recent review, for example, management researchers identified 30 potentially different forms of OCB, which they conveniently collapsed into seven common themes: (1) Helping Behavior, (2) Sportsmanship, (3) Organizational Loyalty, (4) Organizational Compliance, (5) Individual Initiative, (6) Civic Virtue, and (7) Self-Development.P. M. Podsakoff, S. B. MacKenzie, J. B. Paine, and D. G. Bachrach, “Organizational Citizenship Behaviors: A Critical Review of the Theoretical and Empirical Literature and Suggestions for Future Research,” Journal of Management 26 (2000): 513–63. Definitions and examples for these seven themes are summarized in Table 1.2 "A current survey of organization citizenship behaviors".These definitions and examples are adapted from D. W. Organ, “The Motivational Basis of Organizational Citizenship Behavior,” in Research in Organizational Behavior 12 (1990): 43–72; J. Graham, “An Essay on Organizational Citizenship Behavior,” Employee Responsibilities and Rights Journal 4 (1991): 225, 249–70; J. M. George, and G. R. Jones, “Experiencing work: Values, attitudes, and moods,” Human Relations 50 (1997): 393–416; J. M. George, and G. R. Jones, “Organizational Spontaneity in Context,” Human Performance 10 (1997): 153–70; J. W. Graham, “An Essay on Organizational Citizenship Behavior,” Employee Responsibilities and Rights Journal 4 (1991): 249–70; D. W. Organ, “Personality and Organizational Citizenship Behavior,” Journal of Management 20 (1994): 465–78; R. H. Moorman, and G. L. Blakely, “Individualism-Collectivism as An Individual Difference Predictor of Organizational Citizenship Behavior,” Journal of Organizational Behavior, 16 (1995): 127–42.Table 1.2 A current survey of organization citizenship behaviorsHelping Behavior (Taking on the forms of altruism, interpersonal helping, courtesy, peacemaking, and cheerleading.)AltruismVoluntary actions that help another person with a work problem.Instructing a new hire on how to use equipment, helping a coworker catch up with a backlog of work, fetching materials that a colleague needs and cannot procure on their own.Interpersonal helpingFocuses on helping coworkers in their jobs when such help was needed.CourtesySubsumes all of those foresightful gestures that help someone else prevent a problem.Touching base with people before committing to actions that will affect them, providing advance notice to someone who needs to know to schedule work.PeacemakingActions that help to prevent, resolve, or mitigate unconstructive interpersonal conflict.CheerleadingThe words and gestures of encouragement and reinforcement of coworkers.Accomplishments and professional development.SportsmanshipA citizenlike posture of tolerating the inevitable inconveniences and impositions of work without whining and grievances.Organizational LoyaltyIdentification with and allegiance to organizational leaders and the organization as a whole, transcending the parochial interests of individuals, work groups, and departments. Representative behaviors include defending the organization against threats, contributing to its good reputation, and cooperating with others to serve the interests of the whole.Organizational Compliance (or Obedience)An orientation toward organizational structure, job descriptions, and personnel policies that recognizes and accepts the necessity and desirability of a rational structure of rules and regulations. Obedience may be demonstrated by a respect for rules and instructions, punctuality in attendance and task completion, and stewardship of organizational resources.Individual Initiative (or Conscientiousness)A pattern of going well beyond minimally required levels of attendance, punctuality, housekeeping, conserving resources, and related matters of internal maintenance.Civic VirtueResponsible, constructive involvement in the political process of the organization, including not just expressing opinions but reading one’s mail, attending meetings, and keeping abreast of larger issues involving the organization.Self-DevelopmentIncludes all the steps that workers take to voluntarily improve their knowledge, skills, and abilities so as to be better able to contribute to their organizations. Seeking out and taking advantage of advanced training courses, keeping abreast of the latest developments in one’s field and area, or even learning a new set of skills so as to expand the range of one’s contributions to an organization.As you can imagine, principles of management are likely to be very concerned with individuals’ in-role performance. At the same time, just a quick glance through Table 1.2 "A current survey of organization citizenship behaviors" should suggest that those principles should help you better manage OCBs as well.Group-Level PerformanceA group is a collection of individuals. Group-level performance focuses on both the outcomes and process of collections of individuals, or groups. Individuals can work on their own agendas in the context of a group. Groups might consist of project-related groups, such as a product group or an entire store or branch of a company. The performance of a group consists of the inputs of the group minus any process loss that result in the final output, such as the quality of a product and the ramp-up time to production or the sales for a given month. Process loss is any aspect of group interaction that inhibits good problem solving.Why do we say group instead of team? A collection of people is not a team, though they may learn to function in that way. A team is a cohesive coalition of people working together to achieve the team agenda (i.e., teamwork). Being on a team is not equal to total subordination of personal agendas, but it does require a commitment to the vision and involves each individual directly in accomplishing the team’s objective. Teams differ from other types of groups in that members are focused on a joint goal or product, such as a presentation, completing in-class exercises, discussing a topic, writing a report, or creating a new design or prototype. Moreover, teams also tend to be defined by their relatively smaller size. For example, according to one definition, “A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they are mutually accountable.”J. R. Katzenbach, and D. K. Smith, The Wisdom of Teams: Creating the High-performance Organization (Boston: Harvard Business School, 1993).The purpose of assembling a team is to accomplish bigger goals that would not be possible for the individual working alone or the simple sum of many individuals’ independent work. Teamwork is also needed in cases where multiple skills are needed or where buy-in is required from certain key stakeholders. Teams can, but do not always, provide improved performance. Working together to further the team agenda seems to increase mutual cooperation between what are often competing factions. The aim and purpose of a team is to perform, to get results, and to achieve victory in the workplace and marketplace. The very best managers are those who can gather together a group of individuals and mold them into an effective team.Compatibility of Individual and Group PerformanceAs a manager, you will need to understand the compatibility of individual and group performance, typically with respect to goals and incentives. What does this mean? Looking at goals first, there should be compatibility between individual and group goals. For example, do the individuals’ goals contribute to the achievement of the group goal or are they contradictory? Incentives also need to be aligned between individuals and groups. A disconnect between these is most likely when individuals are too far insulated from the external environment or rewarded for action that is not consistent with the goal. For example, individuals may be seeking to perfect a certain technology and, in doing so, delay its release to customers, when customers would have been satisfied with the current solution and put a great priority on its timely delivery. Finally, firms need to be careful to match their goals with their reward structures. For example, if the organization’s goal is to increase group performance but the firm’s performance appraisal process rewards individual employee productivity, then the firm is unlikely to create a strong team culture.KEY TAKEAWAYThis section helped you understand individual and group performance and suggested how they might roll up into organizational performance. Principles of management incorporate two key facets of individual performance: in-role and OCB (or extra-role) performance. Group performance, in turn, was shown to be a function of how well individuals achieved a combination of individual and group goals. A team is a type of group that is relatively small, and members are willing and able to subordinate individual goals and objectives to those of the larger group.EXERCISESWhat is in-role performance?What is extra-role performance?What is the relationship between extra-role performance and OCBs?What differentiates a team from a group?When might it be important to understand the implications of individual performance for group performance?1.7 Your Principles of Management Survivor’s GuideLEARNING OBJECTIVESKnow your learning style.Know how to match your style to the circumstances.Use the gauge-discover-reflect framework.Principles of management courses typically combine knowledge about skills and the development and application of those skills themselves. For these reasons, it is helpful for you to develop your own strategy for learning about and developing management skills. The first part of this strategy should be based on your own disposition toward learning. The second part of this strategy should follow some form of the gauge-discover-reflect process that we outline at the end of this section.Assess Your Learning StyleYou can assess your learning style in a number of ways. At a very general level, you can assess your style intuitively (see “What Is Your Intuition about Your Learning Style?”); however, we suggest that you use a survey instrument like the Learning Style Index (LSI), the output from which you can then readily compare with your intuition. In this section, we discuss the dimensions of the LSI that you can complete easily and quickly online.B. A. Soloman, and R. M. Felder. http://www.engr.ncsu.edu/learningstyles/ilsweb.html (accessed October 15, 2008). The survey will reveal whether your learning style is active or reflective, sensory or intuitive, visual or verbal, and sequential or global.This section is based heavily on the work of Richard K. Felder and Linda K. Silverman. In addition to their research, there is an online instrument used to assess preferences on four dimensions (active or reflective, sensing or intuitive, visual or verbal, and sequential or global) of a learning style model formulated by Felder and Soloman of North Carolina State University. The Learning Styles Index (LSI) may be used at no cost for noncommercial purposes by individuals who wish to determine their own learning style profile and by educators who wish to use it for teaching, advising, or research. See R. M. Felder, and R. Brent, “Understanding Student Differences,” Journal of Engineering Education 94, no. 1 (2005) : 57–72, for an exploration of differences in student learning styles, approaches to learning (deep, surface, and strategic), and levels of intellectual development, with recommended teaching practices to address all three categories. R. M. Felder, and J. E. Spurlin, “Applications, Reliability, and Validity of the Index of Learning Styles,” Journal of Engineering Education 21, no. 1 (2005): 103–12, provides a validation study of the LSI. Also see T. A. Litzinger, S. H. Lee, J. C. Wise, and R. M. Felder, “A Psychometric Study of the Index of Learning Styles,” Journal of Engineering Education 96, no. 4 (2007): 309–19.What Is Your Intuition About Your Learning Style?Your learning style may be defined in large part by the answers to four questions:How do you prefer to process information: actively—through engagement in physical activity or discussion? Or reflectively—through introspection?What type of information do you preferentially perceive: sensory (external)—sights, sounds, physical sensations? Or intuitive (internal)—possibilities, insights, hunches?Through which sensory channel is external information most effectively perceived: visual—pictures, diagrams, graphs, demonstrations? Or verbal—words, sounds? (Other sensory channels like touch, taste, and smell are relatively untapped in most educational environments, and are not considered here.)How do you progress toward understanding: sequentially—in continual steps? Or globally—in large jumps, holistically?TRY IT OUT HERE: http://www.engr.ncsu.edu/learningstyles/ilsweb.htmlActive and Reflective LearnersEverybody is active sometimes and reflective sometimes. Your preference for one category or the other may be strong, moderate, or mild. A balance of the two is desirable. If you always act before reflecting, you can jump into things prematurely and get into trouble, while if you spend too much time reflecting, you may never get anything done.“Let’s try it out and see how it works” is an active learner’s phrase; “Let’s think it through first” is the reflective learner’s response. If you are an active learner, you tend to retain and understand information best by doing something active with it—discussing it, applying it, or explaining it to others. Reflective learners prefer to think about it quietly first.Sitting through lectures without getting to do anything physical but take notes is hard for both learning types but particularly hard for active learners. Active learners tend to enjoy group work more than reflective learners, who prefer working alone.Sensing and Intuitive LearnersEverybody is sensing sometimes and intuitive sometimes. Here too, your preference for one or the other may be strong, moderate, or mild. To be effective as a learner and problem solver, you need to be able to function both ways. If you overemphasize intuition, you may miss important details or make careless mistakes in calculations or hands-on work; if you overemphasize sensing, you may rely too much on memorization and familiar methods and not concentrate enough on understanding and innovative thinking.Even if you need both, which one best reflects you? Sensors often like solving problems by well-established methods and dislike complications and surprises; intuitors like innovation and dislike repetition. Sensors are more likely than intuitors to resent being tested on material that has not been explicitly covered in class. Sensing learners tend to like learning facts; intuitive learners often prefer discovering possibilities and relationships.Sensors tend to be patient with details and good at memorizing facts and doing hands-on (laboratory) work; intuitors may be better at grasping new concepts and are often more comfortable than sensors with abstractions and mathematical formulations. Sensors tend to be more practical and careful than intuitors; intuitors tend to work faster and to be more innovative than sensors.Sensors don’t like courses that have no apparent connection to the real world (so if you are sensor, you should love principles of management!); intuitors don’t like “plug-and-chug” courses that involve a lot of memorization and routine calculations.Visual and Verbal LearnersIn most college classes, very little visual information is presented: students mainly listen to lectures and read material written on whiteboards, in textbooks, and on handouts. Unfortunately, most of us are visual learners, which means that we typically do not absorb nearly as much information as we would if more visual presentation were used in class. Effective learners are capable of processing information presented either visually or verbally.Visual learners remember best what they see—pictures, diagrams, flowcharts, time lines, films, and demonstrations. Verbal learners get more out of words—written and spoken explanations. Everyone learns more when information is presented both visually and verbally.Sequential and Global LearnersSequential learners tend to follow logical, stepwise paths in finding solutions; global learners may be able to solve complex problems quickly or put things together in novel ways once they have grasped the big picture, but they may have difficulty explaining how they did it. Sequential learners tend to gain understanding in linear steps, with each step following logically from the previous one. Global learners tend to learn in large jumps, absorbing material almost randomly without seeing connections, and then suddenly “getting it.”Many people who read this description may conclude incorrectly that they are global since everyone has experienced bewilderment followed by a sudden flash of understanding. What makes you global or not is what happens before the light bulb goes on. Sequential learners may not fully understand the material, but they can nevertheless do something with it (like solve the homework problems or pass the test) since the pieces they have absorbed are logically connected. Strongly global learners who lack good sequential thinking abilities, however, may have serious difficulties until they have the big picture. Even after they have it, they may be fuzzy about the details of the subject, while sequential learners may know a lot about specific aspects of a subject but may have trouble relating them to different aspects of the same subject or to different subjects.Adapt Your StyleOK, so you’ve assessed your learning style. What should you do now? You can apply this valuable and important information about yourself to how you approach your principles of management course and the larger P-O-L-C framework.Active LearnersIf you act before you think, you are apt to make hasty and potentially ill-informed judgments. You need to concentrate on summarizing situations and taking time to sit by yourself to digest information you have been given before jumping in and discussing it with others.If you are an active learner in a class that allows little or no class time for discussion or problem-solving activities, you should try to compensate for these lacks when you study. Study in a group in which the members take turns explaining different topics to one another. Work with others to guess what you will be asked on the next test, and figure out how you will answer. You will always retain information better if you find ways to do something with it.Reflective LearnersIf you think too much, you risk doing nothing—ever. There comes a time when a decision has to be made or an action taken. Involve yourself in group decision making whenever possible, and try to apply the information you have in as practical a manner as possible.If you are a reflective learner in a class that allows little or no class time for thinking about new information, you should try to compensate for this lack when you study. Don’t simply read or memorize the material; stop periodically to review what you have read and to think of possible questions or applications. You might find it helpful to write short summaries of readings or class notes in your own words. Doing so may take extra time but will enable you to retain the material more effectively.Sensory LearnersIf you rely too much on sensing, you tend to prefer what is familiar and concentrate on facts you know instead of being innovative and adapting to new situations. Seek out opportunities to learn theoretical information and then bring in facts to support or negate these theories.Sensors remember and understand information best if they can see how it connects to the real world. If you are in a class where most of the material is abstract and theoretical, you may have difficulty. Ask your instructor for specific examples of concepts and procedures, and find out how the concepts apply in practice. If the teacher does not provide enough specifics, try to find some in your course text or other references or by brainstorming with friends or classmates.Intuitive LearnersIf you rely too much on intuition, you risk missing important details, which can lead to poor decision making and problem solving. Force yourself to learn facts or memorize data that will help you defend or criticize a theory or procedure you are working with. You may need to slow down and look at detail you would otherwise typically skim.Many college lecture classes are aimed at intuitors. However, if you are an intuitor and you happen to be in a class that deals primarily with memorization and rote substitution in formulas, you may have trouble with boredom. Ask your instructor for interpretations or theories that link the facts, or try to find the connections yourself. You may also be prone to careless mistakes on tests because you are impatient with details and don’t like repetition (as in checking your completed solutions). Take time to read the entire question before you start answering, and be sure to check your results.Visual LearnersIf you concentrate more on pictorial or graphical information than on words, you put yourself at a distinct disadvantage because verbal and written information is still the main preferred choice for delivery of information. Practice your note taking, and seek out opportunities to explain information to others using words.If you are a visual learner, try to find diagrams, sketches, schematics, photographs, flowcharts, or any other visual representation of course material that is predominantly verbal. Ask your instructor, consult reference books, and see whether any videotapes or CD-ROM displays of the course material are available. Prepare a concept map by listing key points, enclosing them in boxes or circles, and drawing lines with arrows between concepts to show connections. Color-code your notes with a highlighter so that everything relating to one topic is the same color.Verbal LearnersAs with visual learners, look for opportunities to learn through audiovisual presentations (such as CD-ROM and Webcasts). When making notes, group information according to concepts, and then create visual links with arrows going to and from them. Take every opportunity you can to create charts, tables, and diagrams.Write summaries or outlines of course material in your own words. Working in groups can be particularly effective: you gain understanding of material by hearing classmates’ explanations, and you learn even more when you do the explaining.Sequential LearnersWhen you break things down into small components you are often able to dive right into problem solving. This seems to be advantageous but can often be unproductive. Force yourself to slow down and understand why you are doing something and how it is connected to the overall purpose or objective. Ask yourself how your actions are going to help you in the long run. If you can’t think of a practical application for what you are doing, then stop and do some more “big picture” thinking.Most college courses are taught in a sequential manner. However, if you are a sequential learner and you have an instructor who jumps around from topic to topic or skips steps, you may have difficulty following and remembering. Ask the instructor to fill in the skipped steps, or fill them in yourself by consulting references. When you are studying, take the time to outline the lecture material for yourself in logical order. In the long run, doing so will save you time. You might also try to strengthen your global-thinking skills by relating each new topic you study to things you already know. The more you can do so, the deeper your understanding of the topic is likely to be.Global LearnersIf grasping the big picture is easy for you, then you can be at risk of wanting to run before you can walk. You see what is needed but may not take the time to learn how best to accomplish it. Take the time to ask for explanations, and force yourself to complete all problem-solving steps before coming to a conclusion or making a decision. If you can’t explain what you have done and why, then you may have missed critical details.If you are a global learner, it can be helpful for you to realize that you need the big picture of a subject before you can master details. If your instructor plunges directly into new topics without bothering to explain how they relate to what you already know, it can cause problems for you. Fortunately, there are steps you can take that may help you get the big picture more rapidly. Before you begin to study the first section of a chapter in a text, skim through the entire chapter to get an overview. Doing so may be time consuming initially, but it may save you from going over and over individual parts later. Instead of spending a short time on every subject every night, you might find it more productive to immerse yourself in individual subjects for large blocks. Try to relate the subject to things you already know, either by asking the instructor to help you see connections or by consulting references. Above all, don’t lose faith in yourself; you will eventually understand the new material, and understanding how it connects to other topics and disciplines may enable you to apply it in ways that most sequential thinkers would never dream of.Gauge-Discover-ReflectYou have already begun to apply the spirit of what we recommend in this third part of the development of your principles of management survival kit, by gauging your learning style. The three essential components are (1) gauge—take stock of your knowledge and capabilities about a topic; (2) discover—learn enough about a topic so that you can set specific development goals on which you can apply and practice, and later gauge again your progress toward your set goals; and (3) reflect—step back and look at the ways you have achieved your goals, take the opportunity to set new ones, and chronicle this experience and thought process in a daily journal.GaugeIt is always good to start any self-development process by getting some sense of where you are. That is why we commence with the gauge stage. For learning and developing in the area of principles of management, such knowledge is essential. By analogy, let’s say you want to take a road trip out of town. Even if you have a map and a compass, it still is pretty important to know exactly where you are starting on the map!Your instructor will likely introduce you to a number of different types of management assessment tools, and you should experiment with them to see how they work and the degree to which results resonate with your intuition. A word of caution here—just because some assessment results may clash with your intuition or self-image, do not immediately assume that they are wrong. Instead, use them as an opportunity and motivation for further probing (this can fuel your work in the discovery and reflect stages).The obvious value of commencing your learning process with some form of assessment is that you have a clear starting point, in terms of knowledge. This also means that you now have a basis for comparing your achievement to any relevant specific goals that you set. Less obvious perhaps is the experience you will gain with principles of management skill assessments in general. More and more organizations use some form of assessment in the recruiting, human resources development, and yes, even promotion processes. Your experience with these different surveys will give you the confidence to take other surveys and the knowledge needed to show organizations that you are aware of your areas of strength and development opportunities.DiscoverThe discovery stage of your principles of management survival kit has four related facets: (1) learn, (2) set goals, (3) apply, and (4) practice. Let us look at each one in turn.LearnYou have probably learned a little about a certain subject just by virtue of gauging your depth in it. In some cases, you might even have read up on the subject a lot to accurately gauge where you were strong or weak. There is not an existing survey for every subject, and it is beneficial to learn how you might gauge this or that area of interest.The learning facet essentially asks that you build your knowledge base about a particular topic. As you know, learning has multiple facets, from simply mastering facts and definitions, to developing knowledge of how you might apply that knowledge. You will typically want to start with some mastery over facts and definitions and then build your knowledge base to a more strategic level—that is, be able to understand when, where, and how you might use those definitions and facts in principles of management.Set SMART GoalsThe combination of gauging and learning about a topic should permit you to set some goals related to your focal topic. For example, you want to develop better team communication skills or better understand change management. While your goals should reflect the intersection of your own needs and the subject, we do know that effective goals satisfy certain characteristics. These characteristics—specific, measurable, aggressive, realistic, and time bound—yield the acronym SMART.In his seminal 1954 work, The Practice of Management (New York: Collins), Peter Drucker coined the usage of the acronym for SMART objectives while discussing objective-based management. Here is how to tell if your goals are SMART goals.SpecificSpecific goals are more likely to be achieved than a general goal. To set a specific goal, you must answer the six “W” questions:Who: Who is involved?What: What do I want to accomplish?Where: At what location?When: In what time frame?Which: What are the requirements and constraints?Why: What specific reasons, purpose, or benefits are there to the accomplishment of the goal?http://www.topachievement.com/smart.html (accessed October 15, 2008).EXAMPLE: A general goal would be, “Get a job as a retail store manager.” But a specific goal would say, “Identify my development needs in the next three weeks to become a retail store manager.” “Are You Ready to Be a Great Retail Store Manager?” provides you with an introductory list of survey questions that might help you accelerate your progress on this particular goal set.Are You Ready to Be a Great Retail Store Manager?The service sector employs more than 80% of the U.S. workforce, and the position of retail store manager is in increasing demand. Have you already developed the skills to be a great store manager? Score yourself on each of these 10 people skills. How close did you get to 100? Identify two areas to develop, and then move on to two more areas once that goal is achieved.“I challenge employees to set new performance goals.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I coach employees to resolve performance problems.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I encourage employees to contribute new ideas.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I take an interest in my employees’ personal lives.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I delegate well.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I communicate my priorities and directions clearly.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I resolve conflicts in a productive way.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I behave in a professional way at work.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I inspire my employees with a dynamic personality.”Never: 1 Seldom: 3 Often: 5 Regularly: 10“I am a good listener.”Never: 1 Seldom: 3 Often: 5 Regularly: 10MeasurableWhen goals are specific, performance tends to be higher.M. E. Tubbs, “Goal setting: A Meta-analytic Examination of the Empirical Evidence,” Journal of Applied Psychology 71 (1986): 474–83. Why? If goals are not specific and measurable, how would you know whether you have reached the goal? Any performance level becomes acceptable. For the same reason, telling someone, “Do your best” is not an effective goal because it is not measurable and does not give the person a specific target.AggressiveThis may sound counterintuitive, but effective goals are difficult, not easy. Aggressive goals are also called stretch goals. Why are effective goals aggressive? Easy goals do not provide a challenge. When goals are aggressive and when they require people to work harder or smarter, performance tends to be dramatically higher.RealisticWhile goals should be difficult, they should also be based in reality. In other words, if a goal is viewed as impossible to reach, it does not have any motivational value. Only you can decide which goal is realistic and which is impossible to achieve; just be sure that the goal you set, while it is aggressive, remains grounded in reality.TimelyThe goal should contain a statement regarding when the proposed performance level will be reached. This way, it provides the person with a sense of urgency.Apply and PracticeYour knowledge of the subject, plus your SMART goals, give you an opportunity to apply and test your knowledge. Going back to our road-trip analogy, gauging gives you a starting point, learning gives you a road map and compass, and goals give you a target destination. Practice, in turn, simply means some repetition of the application process. Your objective here should be to apply and practice a subject long enough that, when you gauge it again, you are likely to see some change or progress.ReflectThis final stage has two parts: (1) gauge again and (2) record.Gauge AgainAs suggested under “Apply and Practice,” you will want to gauge your progress. Have you become more innovative? Do you better communicate in teams? Do you have a better understanding of other key principles of management?RecordMany people might stop at the gauge again point, but they would be missing out on an incredibly valuable opportunity. Specifically, look at what you have learned and achieved regarding your goals, and chronicle your progress in some form of a journal.K. Bromley, Journaling: Engagements in Reading, Writing, and Thinking (New York: Scholastic, 1993). A journal may be a required component of a principles of management course, so there may be extrinsic as well as intrinsic motives for starting to keep a journal.There are also various exercises that you can partake in through your journaling. These allow you to challenge yourself and think more creatively and deeply. An effective journal entry should be written with clear images and feelings. You should aim to include your reactions along with the facts or events related to your developmental goals. The experience of certain experiments may not necessarily be what you thought it would be, and this is what is important to capture. You are bound to feel turmoil in various moments, and these feelings are excellent fodder for journaling. Journaling allows you to vent and understand emotions. These types of entries can be effective at giving yourself a more rounded perspective on past events.In addition to the goals you are evaluating, there are numerous things to write about in a journal. You can reflect on the day, the week, or even the year. You can reflect on events that you have been a part of or people you have met. Look for conclusions that you may have made or any conflicts that you faced. Most important, write about how you felt. This will allow you to examine your own emotional responses. You may find that you need to make a personal action or response to those conflicts. The conclusions that you make from your journal entries are the ingredients to self-growth. Facing those conflicts may also change your life for the better, as you are able to grow as a person.You should also always go back and review what you have written. Think about each journal entry you have made and what it means. This is the true aspect of self-growth through journaling. It is easy to recognize changes in yourself through your journaling. You may find that you had a disturbing idea one day, but the next your attitude was much better. You may also find that your attitude grows and improves day by day. This is what makes journaling a true self-growth tool.Journaling may be inexpensive, but it does require time and commitment. The time factor itself can be small, only about 10 minutes a day or maybe 30 minutes a week, depending on how you would like to summarize your life. You do, however, have to be motivated to write on a regular basis. Even if you do not have a lot of time to write, you will still be able to enjoy the large amount of personal growth that is available through journaling. Perhaps this suggests that your first goal set relates to time set aside for journaling.KEY TAKEAWAYYou have seen how different individuals approach the learning process and that an understanding of these differences can help you with your objectives related to principles of management. Beyond this general understanding of your own learning style, you also have an opportunity to put together your own survival kit for this course. Your kit will have answers and resources based on the gauge-discover-reflect framework. The development of SMART goals are particularly important in the successful application of the framework.EXERCISESWhat is your learning style?How does your style compare with your prior intuition?What target learning issue could you use to experiment with the gauge-discover-reflect framework?What does the acronym SMART refer to, in the context of goal setting?What SMART goals could you apply to your target learning issue?

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Published - Fri, 10 Mar 2023

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