5.3: Stress in Organizations

5.3.1: Defining Stress

Learning Objective

Define stress within the field of organizational behavior and workplace dynamics

Key Points

• Differences in individual characteristics, such as personality and coping skills, can be very important predictors of whether certain job conditions will result in stress.
• Stress-related disorders include a broad array of conditions, including psychological disorders and other types of emotional strain, maladaptive behaviors, cognitive impairment, and various biological reactions – each of which can eventually compromise a person’s physical health.
• Categories of work demands that may cause stress include task demands, role demands, interpersonal demands, and physical demands.

Key Term

stress

Mental, physical, or emotional strain caused by a demand that challenges or exceeds the individual’s coping ability.

Stress

Stress is defined in terms of how it impacts physical and psychological health; it includes mental, physical, and emotional strain. Stress occurs when a demand exceeds an individual’s coping ability and disrupts his or her psychological equilibrium. Stress occurs in the workplace when an employee perceives a situation to be too strenuous to handle, and therefore threatening to his or her well-being.

Stress

A black and white photo of a woman that captures her high level of stress.

Stress at Work

While it is generally agreed that stress occurs at work, views differ on the importance of worker characteristics versus working conditions as its primary cause. The differing viewpoints suggest different ways to prevent stress at work. Different individual characteristics, like personality and coping skills, can be very important predictors of whether certain job conditions will result in stress. In other words, what is stressful for one person may not be a problem for someone else.

Stress-related disorders encompass a broad array of conditions, including psychological disorders (e.g., depression, anxiety, post-traumatic stress disorder) and other types of emotional strain (e.g., dissatisfaction, fatigue, tension), maladaptive behaviors (e.g., aggression, substance abuse), and cognitive impairment (e.g., concentration and memory problems). Job stress is also associated with various biological reactions that may ultimately lead to compromised physical health, such as cardiovascular disease.

Categories of Work Stress

Four categories of stressors underline the different causal circumstances for stress at work:

1. Task Demands – This is the sense of not knowing where a job will lead you and whether the activities and tasks will change. This uncertainty causes stress that manifests itself in feelings of lack of control, concern about career progress, and time pressures.
2. Role Demands – Role conflict happens when an employee is exposed to inconsistent or difficult expectations. Examples include: interole conflict (when there are two or more expectations or separate roles for one person), intrarole conflict (varying expectations of one role), person-role conflict (ethics are challenged), and role ambiguity (confusion about their experiences in relation to the expectations of others).
3. Interpersonal Demands – Examples include: emotional issues (abrasive personalities, offensive co-workers), sexual harassment (directed mostly toward women), and poor leadership (lack of management experience, poor style, cannot handle having power).
4. Physical Demands – Many types of work are physically demanding, including strenuous activity, extreme working conditions, travel, exposure to hazardous materials, and working in a tight, loud office.

5.3.2: Causes of Workplace Stress

Learning Objective

Evaluate the role of work conditions, economic factors, and organizational social dynamics in the experience of stress in the workplace

Key Points

• Job stress can result from interactions between the worker and the conditions of the work. This can include factors such as long work hours and an employee’s status in the organization.
• Economic factors that employees are facing in the 21st century, such as company layoffs in response to economic conditions, have been linked to increased stress levels.
• Uncertainty around the future of one’s job, lack of clarity about responsibilities, inconsistent or difficult expectations, interpersonal issues between workers, and physical demands of the work can also impact stress levels.
• Non-work demands, such as personal or home demands, can also contribute to stress both inside and outside of work.

Key Term

stress

Mental, physical, or emotional strain due to a demand that exceeds an individual’s coping ability.

Work-Related Stress

Problems caused by stress have become a major concern to both employers and employees. Symptoms of stress can manifest both physiologically and psychologically. Work-related stress is typically caused by demands and pressure from either within or outside of the workplace; it can be derived from uncertainty over where the job will take the employee, inconsistent or difficult expectations, interpersonal issues, or physical demands.

Although the importance of individual differences cannot be ignored, scientific evidence suggests that certain working conditions are stressful to most people. Such evidence argues that working conditions are a key source of job stress and job redesign should be used as a primary prevention strategy.

Studies of Work-Related Stress

Large-scale surveys of working conditions—including conditions recognized as risk factors for job stress—were conducted in member states of the European Union in 1990, 1995, and 2000. Results showed a time-related trend that suggested an increase in work intensity. In 1990, the percentage of workers reporting that they worked at high speeds for at least one-quarter of their working time was 48%; this increased to 54% in 1995 and 56% in 2000. Similarly, 50% of workers reported that they worked against tight deadlines at least one-fourth of their working time in 1990; this increased to 56% in 1995 and 60% in 2000. However, no change was noted in the period from 1995 to 2000 in the percentage of workers reporting sufficient time to complete tasks (data was not collected in 1990 for this category).

A substantial percentage of Americans work very long hours. By one estimate, more than 26% of men and more than 11% of women worked 50 hours or more per week (outside of the home) in 2000. These figures represent a considerable increase over the previous three decades—especially for women. According to the Department of Labor, there has been an upward trend in hours worked among employed women, an increase in work weeks of greater than forty hours by men, and a considerable increase in combined working hours among working couples, particularly couples with young children.

Power and Stress

A person’s status in the workplace can also affect levels of stress. Stress in the workplace has the potential to affect employees of all categories, and managers as well as other kinds of workers are vulnerable to work overload. However, less powerful employees (those who have less control over their jobs) are more likely to experience stress than employees with more power. This indicates that authority is an important factor complicating the work stress environment.

Economics and Stress

Economic factors that employees are facing in the 21st century have been linked to increased stress levels as well. Researchers and social commentators have pointed out that advances in technology and communications have made companies more efficient and more productive than ever before. This increase in productivity has resulted in higher expectations and greater competition, which in turn place more stress on employees.

The following economic factors can contribute to workplace stress:

• Pressure from investors who can quickly withdraw their money from company stocks
• Lack of trade and professional unions in the workplace
• Inter-company rivalries caused by global competition
• The willingness of companies to swiftly lay off workers to cope with changing business environments

Social Interactions and Stress

Bullying in the workplace can also contribute to stress. Workplace bullying can involve threats to an employee’s professional or personal image or status, deliberate isolation, or giving an employee excess work.

Another type of workplace bullying is known as “destabilization.” Destabilization can occur when an employee is not given credit for their work or is assigned meaningless tasks. In effect, destabilization can create a hostile work environment for employees, negatively affecting their work ethic and therefore their contributions to the organization.

Stress Outside of the Workplace

Non-work demands can create stress both inside and outside of work. Stress is inherently cumulative, and it can be difficult to separate our personal and professional stress inducers. Examples of non-work stress that can be carried into the workplace include:

• Home demands: Relationships, children, and family responsibilities can add stress that is hard to leave behind when entering the workplace. The Academy of Management Journal states that this constitutes “an individual’s lack of personal resources needed to fulfill commitments, obligations, or requirements.”
• Personal demands: Personal demands are brought on by the person when he or she takes on too many responsibilities, either inside or outside of work.

5.3.3: Consequences of Workplace Stress

Learning Objective

Recognize the potentially severe consequences of work-related stress on an individual, particularly over time

Key Points

• Problems at work are more strongly associated with health complaints than any other life stressor.
• Participation problems such as absenteeism, tardiness, strikes, and turnover take a severe toll on a company.
• Individual distress manifests in three basic forms: psychological disorders, medical illnesses, and behavioral problems.
• When individual workers within an organization suffer from a high degree of stress, overall efficiency can substantially decrease. Stressed workers will ultimately foster a negative culture and show reduce operational capabilities.

Key Terms

stress

Mental, physical, or emotional strain due to a demand that exceeds an individual’s ability to cope.

psychosomatic

Pertaining to physical diseases or symptoms that have psychological causes.

Stress

Symptoms of stress

Stress can manifest as various symptoms affecting one’s body, mind, behavior, and/or emotions.

Negative or overwhelming work experiences can cause a person substantial distress. Burnout, depression, and psychosomatic disorders are particularly common outcomes of work-related stress. In general, individual distress manifests in three basic forms: psychological disorders, medical illnesses, and behavioral problems.

Psychological Disorders

Psychosomatic disorders are a type of psychological disorder. They are physical problems with a psychological cause. For example, a person who is extremely anxious about public speaking might feel extremely nauseated or may find themselves unable to speak at all when faced with the prospect of presenting in front of a group. Since stress of this type is often difficult to notice, managers would benefit from carefully monitoring employee behavior for indications of discomfort or stress.

Medical Illnesses

Physiological reactions to stress can have a long-term impact on physical health. In fact, stress is one of the leading precursors to long-term health issues. Backaches, stroke, heart disease, and peptic ulcers are just a few physical ailments that can arise when a person is under too much stress.

Behavioral Problems

A person can also exhibit behavioral problems when under stress, such as aggression, substance abuse, absenteeism, poor decision making, lack of creativity, or even sabotage. A stressed worker may neglect their duties, impeding workflows and processes so that the broader organization slows down and loses time and money. Managers should keep an eye out for such behaviors as possible indicators of workplace stress.

Organizational Effects of Stress

Stress in the workplace can be, so to speak, “contagious”—low job satisfaction is often something employees will discuss with one another. If stress is not noted and addressed by management early on, team dynamics can erode, hurting the social and cultural synergies present in the organization. Ultimately, the aggressive mentality will be difficult to remedy.

Managers are in a unique position when it comes to workplace stress. As they are responsible for setting the pace, assigning tasks, and fostering the social customs that govern the work group, management must be aware of the repercussions of mismanaging and inducing stress. Managers should consistently discuss job satisfaction and professional and personal health with each of their subordinates one on one.

5.3.4: Reducing Workplace Stress

Learning Objective

Examine the various ways in which job stress can be prevented or reduced in an organization

Key Points

• Stress management refers to a wide spectrum of techniques and therapies that aim to control a person’s levels of stress, especially chronic stress, to improve everyday functioning.
• To reduce workplace stress, managers can monitor each employee’s workload to ensure it is in line with their capabilities and resources.
• Managers can also be clear and explicit about general expectations and long-term objectives to ensure there is no discrepancy between what the manager is looking for and what the employee is working toward.
• Managers must keep culture in mind when approaching issues of workplace stress. They must quickly dismantle any negative workplace culture that arises, such as bullying or harassment, and replace it with a constructive working environment.

Key Term

stress

Mental, physical, or emotional strain due to a demand that exceeds an individual’s ability to cope.

Stress management refers to a wide spectrum of techniques and therapies that aim to control a person’s levels of stress, especially chronic stress, to improve everyday functioning.

Preventing Job Stress

If employees are experiencing unhealthy levels of stress, a manager can bring in an objective outsider, such as a consultant, to suggest a fresh approach. But there are many ways managers can prevent job stress in the first place. A combination of organizational change and stress management is often the most effective approach. Among the many different techniques managers can use to effectively prevent employee stress, the main underlying themes are awareness of possibly stressful elements of the workplace and intervention when necessary to mitigate any stress that does arise.

Specifically, organizations can prevent employee stress in the following ways:

Intentional Job Design

• Design jobs that provide meaning and stimulation for workers as well as opportunities for them to use their skills.
• Establish work schedules that are compatible with demands and responsibilities outside the job.
• Consider flexible schedules—many organizations allow telecommuting to reduce the pressure of being a certain place at a certain time (which enables people to better balance their personal lives).
• Monitor each employee’s workload to ensure it is in line with their capabilities and resources.

Clear and Open Communication

• Teach employees about stress awareness and promote an open dialogue.
• Avoid ambiguity at all costs—clearly define workers’ roles and responsibilities.
• Reduce uncertainty about career development and future employment prospects.

Positive Workplace Culture

• Provide opportunities for social interaction among workers.
• Watch for signs of dissatisfaction or bullying and work to combat workplace discrimination (based on race, gender, national origin, religion, or language).

Employee Accountability

• Give workers opportunities to participate in decisions and actions that affect their jobs.
• Introduce a participative leadership style and involve as many subordinates as possible in resolving stress-producing problems.

Stress Prevention Programs

St. Paul Fire and Marine Insurance Company conducted several studies on the effects of stress prevention programs in a hospital setting. Program activities included educating employees and management about workplace stress, changing hospital policies and procedures to reduce organizational sources of stress, and establishing of employee assistance programs. In one study, the frequency of medication errors declined by 50% after prevention activities were implemented in a 700-bed hospital. In a second study, there was a 70% reduction in malpractice claims among 22 hospitals that implemented stress prevention activities. In contrast, there was no reduction in claims in a matched group of 22 hospitals that did not implement stress prevention activities.

5.4: Drivers of Behavior

5.4.1: Defining Attitude

An attitude is generally defined as the way a person responds to his or her environment, either positively or negatively.

Learning Objective

Define attitude within the context of behavioral norms for employees in an organization

Key Points

• An attitude could be generally defined as a way a person responds to his or her environment, either positively or negatively. The precise definition of attitude is nonetheless a source of some discussion and debate.
• Work environment can affect a person’s attitude.
• Some attitudes are a dangerous element in the workplace, one that can spread to those closest to the employee and affect everyone’s performance.
• Attitudes are the confluence of an individual and external stimuli, and therefore everyone is in a position of responsibility to improve them (managers, employees, and organizations).
• A strong work environment is vital for an effective and efficient workplace.

Key Term

attitude

Disposition or state of mind.

Overview

An attitude could be generally defined as the way a person responds to his or her environment, either positively or negatively. The definition of attitude is nonetheless a source of some discussion and debate.

When defining attitude, it is helpful to bear two useful conflicts in mind. The first is the existence of ambivalence or differences of attitude towards a given person, object, situation etc. from the same person, sometimes at the same time. This ambivalence indicates that attitude is inherently more complex than a simple sliding scale of positive and negative, and defining these axes in different ways is integral to identifying the essence of attitude. The second conflict to keep in mind is the degree of implicit versus explicit attitude, which is to say subconscious versus conscious. Indeed, people are often completely ignorant of their implicit attitudes, complicating the ability to study and interpret them accurately.

The takeaway here is to be specific when discussing attitudes, and define terms carefully. For a manager to say that somebody has attitude, or that somebody is being negative or positive about something, is vague and nonconstructive. Instead, a manager’s job is to observe and to try to pinpoint the possible causes and effects of a person’s perspective on something.

Attitudes in the Workplace

Everyone has attitudes about many things; these are not necessarily a bad thing. One aspect of employees’ attitude is the impact it can have on the people around them. People with a positive attitude can lift the spirits of their co-workers, while a person with a negative attitude can lower their spirits. Sometimes, though, this principle works in reverse, and attitudes are often more complex than positive or negative. Attitudes may affect both the employee’s work performance and the performances of co-workers .

Attitude

A person’s attitude can be influenced by his or her environment, just as a person’s attitude affects his or her environment.

Can Management Change People’s Attitudes?

Some attitudes represent a dangerous element in the workplace that can spread to those closest to the employee and affect everyone’s performance. Is it a manager’s responsibility to help change the person’s attitude? Should the employee alone be responsible? The answer is that attitudes are the confluence of an individual and external stimuli, and therefore everyone is in a position of responsibility.

Still, a manager may be able to influence a employee’s attitude if the root cause relates to work conditions or work environment. For example, employees may develop poor attitudes if they work long hours, if the company is having difficulties, or if they have relationship issues with the manager or another employee. Similarly, if employees feel believe there is little chance for advancement or that their efforts go unappreciated by the organization, they may develop a negative attitude. To the extent they are able, managers should strive to remedy these situations to encourage an effective work environment.

A strong work environment is vital for an effective and efficient workplace. Employees who are in a positive, encouraging work environment are more likely to seek solutions and remain loyal, even if the company is having financial difficulties. Even so, employees have some responsibility to alter their own attitudes. If management does everything in its power to create a positive environment and the employee refuses to participate, then managers can do little else to help. At times, attitudes are beyond the reach of the business to improve.

5.4.2: How Attitude Influences Behavior

Attitudes can positively or negatively affect a person’s behavior, regardless of whether the individual is aware of the effects.

Learning Objective

Explain how differing attitudes can have a meaningful effect on employee behavior

Key Points

• Attitudes are infectious and can affect the people that are near the person exhibiting a given attitude, which in turn can influence their behavior as well.
• Understanding different types of attitudes and their likely implications is useful in predicting how individuals’ attitudes influence their behavior.
• Daniel Katz identifies four categories of attitudes: utilitarian, knowledge, ego-defensive and value-expressive.
• Organizations can influence a employee’s attitudes and behavior by using different management strategies and by creating strong organizational environments.
• As people are affected in different ways by varying influences, an organization may want to implement multiple strategies.

Key Term

behavior change

Any transformation or modification of human habits or patterns of conduct.

Individual Attitudes and Behaviors

Attitudes can positively or negatively affect a person’s behavior. A person may not always be aware of his or her attitude or the effect it is having on behavior. A person who has positive attitudes towards work and co-workers (such as contentment, friendliness, etc.) can positively influence those around them. These positive attitudes are usually manifested in a person’s behavior; people with a good attitude are active and productive and do what they can to improve the mood of those around them.

In much the same way, a person who displays negative attitudes (such as discontentment, boredom, etc.), will behave accordingly. People with these types of attitudes towards work may likewise affect those around them and behave in a manner that reduces efficiency and effectiveness.

Attitudinal Categories

Attitude and behavior interact differently based upon the attitude in question. Understanding different types of attitudes and their likely implications is useful in predicting how individuals’ attitudes may govern their behavior. Daniel Katz uses four attitude classifications:

1. Utilitarian: Utilitarian refers to an individual’s attitude as derived from self or community interest. An example could be getting a raise. As a raise means more disposable income, employees will have a positive attitude about getting a raise, which may positively affect their behavior in some circumstances.
2. Knowledge: Logic, or rationalizing, is another means by which people form attitudes. When an organization appeals to people’s logic and explains why it is assigning tasks or pursuing a strategy, it can generate a more positive disposition towards that task or strategy (and vice versa, if the employee does not recognize why a task is logical).
3. Ego-defensive: People have a tendency to use attitudes to protect their ego, resulting in a common negative attitude. If a manager criticizes employees’ work without offering suggestions for improvement, employees may form a negative attitude and subsequently dismiss the manager as foolish in an effort to defend their work. Managers must therefore carefully manage criticism and offer solutions, not simply identify problems.
4. Value-expressive: People develop central values over time. These values are not always explicit or simple. Managers should always be aware of what is important to their employees from a values perspective (that is, what do they stand for? why do they do what they do?). Having such an awareness can management to align organizational vision with individual values, thereby generating passion among the workforce.

Organizational Attitudes and Behaviors

Attitudes can be infectious and can influence the behavior of those around them. Organizations must therefore recognize that it is possible to influence a person’s attitude and, in turn, his or her behavior. A positive work environment, job satisfaction, a reward system, and a code of conduct can all help reinforce specific behaviors.

One key to altering an individual’s behavior is consistency. Fostering initiatives that influence behavior is not enough; everyone in the organization needs to be committed to the success of these initiatives. It is also important to remember that certain activities will be more effective with some people than with others. Management may want to outline a few different behavior-change strategies to have the biggest effect across the organization and take into consideration the diversity inherent in any group.

5.4.3: Defining Values

Values are guiding principles that determine individual morality and conduct.

Learning Objective

Define values in the context of organizational ethics and organizational behavior

Key Points

• Personal values are people’s internal conception of what is good, beneficial, important, useful, beautiful, desirable, constructive, etc.
• Values such as honesty, hard work, and discipline can increase an employee’s efficacy in the workplace and help them serve as a positive role model to others.
• Employees should not impose their own values on their co-workers.
• Management must take values into consideration when hiring to ensure that employee values align with the company’s, as well as those of other co-workers.

Key Term

values

A collection of guiding principles; what an individual considers to be morally right and desirable in life, especially regarding personal conduct.

Overview

Personal values can be influenced by culture, tradition, and a combination of internal and external factors. Values determine what individuals find important in their daily life and help to shape their behavior in each situation they encounter. Since values often strongly influence both attitude and behavior, they serve as a kind of personal compass for employee conduct in the workplace. Values help determine whether an employee is passionate about work and the workplace, which in turn can lead to above-average returns, high employee satisfaction, strong team dynamics, and synergy.

How Are Values Formed?

Values are usually shaped by many different internal and external influences, including family, traditions, culture, and, more recently, media and the Internet. A person will filter all of these influences and meld them into a unique value set that may differ from the value sets of others in the same culture.

Values are thought to develop in various stages during a person’s upbringing, and they remain relatively consistent as children mature into adults. Sociologist Morris Massey outlines three critical development periods for an individual’s value system:

• Imprint period (birth to age seven): Individuals begin establishing the template for what will become their own values.
• Modeling period (ages eight to thirteen): The individual’s value template is sculpted and shaped by parents, teachers, and other people and experiences in the person’s life.
• Socialization period (ages thirteen to twenty-one): An individual fine-tunes values through personal exploration and comparing and contrasting with other people’s behavior.

Values in the Workplace

Values can strongly influence employee conduct in the workplace. If an employee values honesty, hard work, and discipline, for example, he will likely make an effort to exhibit those traits in the workplace. This person may therefore be a more efficient employee and a more positive role model to others than an employee with opposite values.

Conflict may arise, however, if an employee realizes that her co-workers do not share her values. For example, an employee who values hard work may resent co-workers who are lazy or unproductive without being reprimanded. Even so, additional conflicts can result if the employee attempts to force her own values on her co-workers.

Hiring for Values

If the managers of a business create a mission statement, they have likely decided what values they want their company to project to the public. The mission statement can help them seek out candidates whose personalities match these values, which can help reduce friction in the workplace and foster a positive work environment.

Skills-based hiring is important for efficiency and is relatively intuitive. However, hiring for values is at least as important. Because individual values have such strong attitudinal and behavioral effects, a company must hire teams of individuals whose values do not conflict with either each other’s or those of the organization.

Hard work

A strong work ethic is a personal value.

5.4.4: How Values Influence Behavior

Values influence behavior because people emulate the conduct they hold valuable.

Learning Objective

Discuss the positive relationship between meaningful corporate and employee values and behavior in the workplace

Key Points

• Values are an important element that affects individuals and how they behave towards others.
• Companies can influence a person’s behavior with codes of conduct, ethics and vision statements, ethics committees, and a punishment-and-reward system.
• A gap sometimes exists between a person’s values and behavior. Organizational strategies, such as a reward system, can close that gap.
• Culture is also largely relevant to how values shape behavior, as a given organizational culture can create camaraderie and social interdependence.

Key Term

behavior

The way a living creature acts.

Overview

Values are defined as perspectives about an appropriate course of action. If a person values honesty, then he or she will strive to be honest. People who value transparency will work hard to be transparent. Values are one important element that affects individual character and behavior towards others. The relationship between values and behavior is intimate, as values create a construct for appropriate actions.

Values and Behavior in the Workplace

A work environment should strive to encourage positive values and discourage negative influences that affect behavior. All individuals possess a moral compass, defined via values, which direct how they treat others and conduct themselves. People who lack strong or ethical values may participate in negative behavior that can hurt the organization. While a company cannot do anything about the influences that shape a person’s values and behavior before hiring, the organization can try to influence employee behavior in the workplace.

Means of Encouraging or Discouraging Behavior

Training programs, codes of conduct, and ethics committees can inform employees of the types of behavior that the company finds acceptable and unacceptable. While these efforts will not necessarily not change an individual’s values, they can help them decide not to participate in unethical behavior while at work. Managers must emphasize not only an employee’s responsibilities, but also what the organization expects with respect to values and ethics. Ethics statements and vision statements are useful tools in communicating to employees what the company stands for and why.

A system of punishments and rewards can also help foster the type of values the company wants to see in its employees, essentially filtering behavior through conditioning. If people see that certain behaviors are rewarded, then they may decide to alter their behavior and in turn alter their values. In addition, a gap sometimes exists between a person’s values and behavior. This gap can stem from a conscious decision not to follow a specific value with a corresponding action. This decision can be influenced by how deeply this value affects the person’s character and by the surrounding environment.

Culture is also largely relevant to how values shape behavior, as a given organizational culture can create camaraderie and social interdependence. Conforming to the expectations and values of the broader organization is a common outcome of organizations with strong ethos and vision. Such an organization promotes passion and positive behavior in their employees. Of course, a company’s culture can work in both directions. Some industries are inherently competitive, valuing individual dominance over other individuals (for example, sales, stock trading, etc.). While some may view such a culture as objectively negative, it is subjectively useful for the organization to instill and develop these values to create certain behaviors (such as hard work and high motivation).

5.4.5: Defining Job Satisfaction

Job satisfaction is the level of contentment employees feel about their work, which can affect performance.

Learning Objective

Define job satisfaction in the context of the driving forces in organizational behavior

Key Points

• Job satisfaction can be influenced by a person’s ability to complete required tasks, the level of communication in an organization, and the way management treats employees.
• Measuring job satisfaction can be challenging, as the definition of satisfaction can be different for different people.
• If an organization is concerned about employee job satisfaction, management may conduct surveys to determine what type of strategies to implement. This approach helps management define job satisfaction objectively.
• Superior-subordinate communication, or the relationship between supervisors and their direct report(s), is another important influence on job satisfaction in the workplace.

Key Term

job satisfaction

The level of contentment a person feels regarding his or her work.

What Is Job Satisfaction?

Job satisfaction is the level of contentment a person feels regarding his or her job. This feeling is mainly based on an individual’s perception of satisfaction. Job satisfaction can be influenced by a person’s ability to complete required tasks, the level of communication in an organization, and the way management treats employees.

Job satisfaction falls into two levels: affective job satisfaction and cognitive job satisfaction. Affective job satisfaction is a person’s emotional feeling about the job as a whole. Cognitive job satisfaction is how satisfied employees feel concerning some aspect of their job, such as pay, hours, or benefits.

Measuring Job Satisfaction

Many organizations face challenges in accurately measuring job satisfaction, as the definition of satisfaction can differ among various people within an organization. However, most organizations realize that workers’ level of job satisfaction can impact their job performance, and thus determining metrics is crucial to creating strong efficiency.

Despite widespread belief to the contrary, studies have shown that high-performing employees do not feel satisfied with their job simply as a result of to high-level titles or increased pay. This lack of correlation is an significant concern for organizations, since studies also reveal that the implementation of positive HR practices results in financial gain for the organizations. The cost of employees is quite high, and creating satisfaction relevant to the return on this investment is paramount. Simply put: positive work environments and increased shareholder value are directly related.

Some factors of job satisfaction may rank as more important than others, depending on each worker’s needs and personal and professional goals. To create a benchmark for measuring and ultimately creating job satisfaction, managers in an organization can employ proven test methods such as the Job Descriptive Index (JDI) or the Minnesota Satisfaction Questionnaire (MSQ). These assessments help management define job satisfaction objectively.

Important Factors

Typically, five factors can be used to measure and influence job satisfaction:

1. Pay or total compensation

2. The work itself (i.e., job specifics such as projects, responsibilities)

3. Promotion opportunities (i.e., expanded responsibilities, more prestigious title)

4. Relationship with supervisor

5. Interaction and work relationship with coworkers

Management and Communication

In addition to these five factors, one of the most important aspects of an individual’s work in a modern organization concerns communication demands that the employee encounters on the job. Demands can be characterized as a communication load: “the rate and complexity of communication inputs an individual must process in a particular time frame.” If an individual receives too many messages simultaneously, does not receive enough input on the job, or is unsuccessful in processing these inputs, the individual is more likely to become dissatisfied, aggravated, and unhappy with work, leading to a low level of job satisfaction.

Superior–subordinate communication, or the relationship between supervisors and their direct report(s), is another important influence on job satisfaction in the workplace. The way in which subordinates perceive a supervisor’s behavior can positively or negatively influence job satisfaction. Communication behavior—such as facial expression, eye contact, vocal expression, and body movement—is crucial to the superior–subordinate relationship.

5.4.6: How Job Satisfaction Influences Behavior

Job satisfaction can affect a person’s level of commitment to the organization, absenteeism, and job turnover.

Learning Objective

Discuss the way in which job satisfaction reflects upon work behaviors in an organization

Key Points

• If people are satisfied with the work they are doing, it feels less like work, thus motivating a more positive attitude and higher levels of passion.
• Individuals who are committed to their job will likely be more willing to work longer hours or take on additional responsibilities without an increase in pay.
• Satisfaction can be improved through effective management strategies. Managers are responsible for understanding what motivates employee satisfaction and creating a positive work environment conducive to it.

Key Terms

job turnover

The number of employees who leave an organization of their own free will and need to be replaced.

job description

An outline of the tasks and responsibilities in a post within an organization.

The Influence of Job Satisfaction on Behavior

Job satisfaction can affect a person’s level of commitment to the organization, absenteeism, and job turnover rate. It can also affect performance levels, employee willingness to participate in problem-solving activities, and the amount of effort employees put in to perform activities outside their job description. When people are satisfied with the work they are doing, then their job feels less like work and is a more enjoyable experience. Those who are satisfied in their jobs usually do not find it difficult to get up and go to work.

Job satisfaction

Job satisfaction can affect relationships.

Job satisfaction also reduces stress, which can affect job performance, mental well-being, and physical health. Stress can also affect decision-making—possibly leading to unethical or nonstrategic choices. Satisfied employees, on the other hand, maintain a more positive and carefree perspective about work. This positive outlook often spreads to co-workers and can have a positive experience on everyone’s performance. There are some indications that job satisfaction is directly tied to job performance; nonetheless, feeling less stressed can positively affect a person’s behavior.

Methods for Increasing Job Satisfaction

To determine if employees are actually satisfied with the work they do, organizations frequently conduct surveys to measure employees’ level of job satisfaction and to identify areas—on-boarding, job training, employee incentive programs, etc.—for improvement and job enrichment. Because job satisfaction varies for each individual, management teams employ several different strategies to help the majority of employees within an organization feel satisfied with their place in the company.

One proven way to enhance job satisfaction is rewarding employees based on performance and positive behavior. When employees go above and beyond their job description to complete a project or assist a colleague, their actions can be referred to as organizational citizenship behavior or OCB (see Bommer, Miles, and Grover, 2003). Bommer, Miles, and Grover state:

Social-information processing is predicated on the notion that people form ideas based on information drawn from their immediate environment, and the behavior of co-workers is a very salient component of an employee’s environment. Therefore, observing frequent citizenship episodes with in a workgroup is likely to lead to attitudes that such OCB is normal and appropriate. Consequently, the individual is likely to replicate this ‘normal’ behavior.

These positive changes in behavior show that people learn from their environments and that corporate culture plays a large part in creating job satisfaction. Managers are tasked with managing this positive culture and understanding how each employee is affected by cultural influences in the workplace. No two people are the same; this is where managers come into play. Managers must be insightful and observant, identifying what motivates high levels of job satisfaction in each individual and ensuring employees get what they need. In some ways, a manager’s customers are their subordinates. Understanding this dynamic is an important component of the role of management.

5.4.7: How Emotion and Mood Influence Behavior

Emotion and mood can affect temperament, personality, disposition, motivation, and initial perspectives and reactions.

Learning Objective

Describe the importance of employee moods and emotions on overall performance from an organizational perspective

Key Points

• The poor decision-making effects of a given mood can hinder a person’s job performance and lead to bad decisions that affect the company.
• Emotion is a subjective lens on an objective world; decision-making should discard emotion whenever possible. This is particularly important for managers, who make significant decisions on a daily basis.
• As emotion is largely a chemical balance (or imbalance) in the mind, emotions can quickly cloud judgment and complicate social interactions without the individual being consciously aware that it is happening.

Key Terms

emotions

Subjective, conscious experiences that are characterized primarily by psycho-physiological expressions, biological reactions, and mental states.

mood

A mental or emotional state.

Emotions in the Workplace

Emotions and mood can affect temperament, personality, disposition, and motivation. They can affect a person’s physical well-being, judgement, and perception. Emotions play a critical role in how individuals behave and react to external stimuli; they are often internalized enough for people to fail to notice when they are at work. Emotions and mood can cloud judgment and reduce rationality in decision-making.

Mood

All moods can affect judgment, perception, and physical and emotional well-being. Long-term exposure to negative moods or stressful environments can lead to illnesses such as heart disease, diabetes, and ulcers. The decision-making effects of any kind of bad mood can hinder a person’s job performance and lead to poor decisions that affect the company. In contrast, a positive mood can enhance creativity and problem solving. However, positive moods can also create false optimism and negatively influence decision making.

Emotion

Emotions are reciprocal with mood, temperament, personality, disposition, and motivation. Emotions can be influenced by hormones and neurotransmitters, such as dopamine and seratonin. Dopamine can affect a person’s energy level and mood, while seratonin can affect critical-thinking skills. As emotion is largely a chemical balance (or imbalance) in the mind, emotions can quickly cloud judgment and complicate social interactions without the individual being consciously aware that it is happening.

Plutchik Wheel

Emotions are complex and move in various directions. Modeling emotional feelings and considering their behavioral implications are useful in preventing emotions from having a negative effect on the workplace.

The implication for behavior is important for both managers and subordinates to understand. Workers must try to identify objectively when an emotional predisposition is influencing their behavior and judgement and ensure that the repercussions of the emotion are either positive or neutralized. Positive emotions can be a great thing, producing extroversion, energy and job satisfaction. However, both positive and negative emotions can distort the validity of a decision. Being overconfident, for example, can be just as dangerous as being under-confident.

Organizational Implications

By encouraging positive employee management relationships and employee dynamics, an organization may be able to balance a person’s mood and emotions. Improving the level of job satisfaction for employees is another way that a company can influence an employee’s mood. If a person is satisfied at work, that condition may reduce levels of stress and help influence motivation and disposition. Job satisfaction can affect a person’s mood and emotional state. Providing organizational benefits, such as a company gym, meditation classes, or company retreats, can likewise influence a person’s emotions. An active lifestyle has been shown to produce an increased level of dopamine, which can enhance energy and mood.

Managers are tasked not only with monitoring and controlling their own moods and emotions, but also with recognizing emotional issues in their subordinates. Managers should strive to balance the emotions of their subordinates, ensuring nothing negatively affects their mental well-being. This can be a difficult role for management, as many people display their emotions in different ways (and most tend to hide them, particularly at work). Managers must be both perceptive and strategic in ensuring a mental balance at work.

5.5: Motivating an Organization

5.5.1: The Importance of Motivation

Motivating employees can lead to increased productivity and allow an organization to achieve higher levels of output.

Learning Objective

Identify the importance of generating high levels of motivation in employees within an organizational behavior framework

Key Points

• Motivation is generally what energizes, maintains, and controls behavior.
• The role of motivation in the workplace is straightforward theoretically but is difficult to actually measure.
• Salary is often enough motivation to keep employees working for an organization, but it’s not always enough to push them to fulfill their full potential.
• Motivated employees will retain a high level of innovation while producing higher-quality work at a higher level of efficiency.
• The opportunity cost in motivating employees is essentially zero.

Key Terms

innovation

The introduction of something new; the development of an original idea.

Opportunity cost

The value of investing in the next best alternative; the value forfeited by taking a particular route.

productivity

The rate at which products and services are generated relative to a particular workforce.

Motivation in the Workplace

Generally speaking, motivation is what energizes, maintains, and controls behavior. As such, it is clear why it plays an important role in the workplace. But empirically measuring that role is another matter; it is challenging to capture an individual’s drive in quantitative metrics in order to ascertain the degree to which higher motivation is responsible for higher productivity. However, it is widely accepted that motivated employees generate higher value and lead to more substantial levels of achievement. The management of motivation is therefore a critical element of success in any business; with an increase in productivity, an organization can achieve higher levels of output.

Research has shown that motivated employees will:

• Always look for a “better” way to complete a task
• Be more quality-oriented
• Work with higher productivity and efficiency

In summary, motivated employees will retain a high level of innovation while producing higher-quality work more efficiently. There is no downside—i.e., the opportunity cost of motivating employees is essentially zero, assuming it does not require additional capital to coach managers to act as effective motivators.

Internal and External Motivation

Salary is often enough to keep employees working for an organization, but it’s not always necessarily enough to push them to fulfill their full potential. Herzberg’s theory emphasizes that while salary is enough to avoid dissatisfaction, it is not necessarily enough to propel employees to increase their productivity and achievement. In fact, the output of employees whose motivation comes solely from salary and benefits tends to decline over time. To increase employees’ efficiency and work quality, managers must turn to understanding and responding to individuals’ internal and external motivations. External motives include work environment (e.g., cramped cubicle vs. airy, open office); internal motivations include thoughts and emotions (e.g., boredom with performing the same task over and over vs. excitement at being given a wide variety of project types).

Internal and external motives

There are four sources of motivation. The three internal motives are needs, cognitions, and emotions. The fourth source consists of external motives.

5.5.2: Perspectives on Motivation

Motivation in the workplace is primarily concerned with improving employees’ focus through the use of incentives.

Learning Objective

Compare and contrast the organizational behavior theories regarding analyzing and improving motivation in the workplace

Key Points

• Generally, motivation in the workplace can be thought of through one of four specific theoretical frameworks: needs-oriented, cognition-oriented, behavior-oriented, and job-oriented.
• In needs-oriented theories, motivation is achieved through fulfilling a particular employee’s needs, with anything from salary to a sense of fulfillment.
• In cognition-oriented theories, motivation is achieved through fulfilling employees’ rational expectation that they be compensated based directly on the amount of value they provide.
• In behavior-oriented theories, motivation is achieved through conditioning (reinforcement and punishment). Conditioning is the implementation of positive incentives to promote desirable behaviors and negative consequences to discourage undesirable behaviors.
• In job-oriented theories, motivation is achieved when employees feel fulfilled and interested in their work; financial compensation is only enough to avoid dissatisfaction.

Key Terms

conditioning

A technique of behavior modification, developed by B.F. Skinner, that utilizes positive and negative reinforcement and positive and negative punishment to alter behavior.

incentive

A reward used to motivate employees to perform better.

From a managerial perspective, very few ideas are more important than the dynamics of motivation. Understanding what moves employees toward efficiency and fulfillment is at the core of any manager’s responsibilities. Motivation in the workplace is primarily concerned with improving employees’ focus, often through pursuing positive incentives and avoiding negative ones.

Theories of motivation are of course rooted in psychology. An individual must direct their attention toward a task, generate the necessary effort to achieve that task, and persist in working toward it despite potential distractions. Various theories have attempted to identify the factors that contribute to effective employee motivation, most of which are easily divided into four broad categories:

• Needs-oriented theories
• Cognition-oriented theories
• Behavior-oriented theories
• Job-oriented theories

Needs-Oriented Theories

At its most basic, motivation can be defined as the fulfillment of various human needs. These needs can encompass a range of human desires, from basic, tangible needs of survival to complex, emotional needs surrounding an individual’s psychological well-being.

Hierarchy of Needs

The most well-known example of a needs-oriented theory of motivation is Maslow’s Hierarchy of Needs. Maslow postulated that needs should be fulfilled in a particular scaffolded order, with food, water, and shelter in the bottom, most fundamental two tiers and intangible needs such as fulfillment, self-esteem, and a sense of belonging in the upper three tiers. While this framework makes a certain amount of logical sense, critics have noted that there have been minimal data that suggest employees strive to satisfy needs in the workplace in accordance with this hierarchical framework. But the fundamental idea behind Maslow’s model is that individuals have various tangible and intangible desires that can be leveraged in the use of motivational incentives.

Maslow’s Hierarchy of Needs

Maslow’s Hierarchy of Needs postulates that need must be fulfilled in a hierarchical order, from basic needs such as food and water to more intangible needs such as self-esteem and a sense of belonging.

Need for Achievement Theory

Atkinson and McClelland proposed the Need for Achievement Theory, which highlights three particular needs in the context of the workplace: achievement, authority, and affiliation. Atkinson and McClelland hypothesized that every individual has a need for all three of these intangible segments of fulfillment but that most individuals lean more toward one of the three. For example, a salesman with a quota to fulfill would be best paired with an achievement-oriented manager, as such a goal-oriented approach toward, for example, a specific number of sales would be highly motivating.

Cognition-Oriented Theories

Cognition-oriented theories generally revolve around expectations and deriving equitable compensation for a given effort or outcome. There are two main cognition-oriented theories: equity theory and expectancy theory.

Equity Theory

Equity Theory is based on the basic concept of exchange. It values the culmination of employee experience, skills, and performance against their respective compensation and advancement opportunities.

Expectancy Theory

Expectancy Theory is similarly derived, but it states this relationship through an equation: Motivation = Expectation (Σ Instrumentality × Valence). Instrumentality simply refers to the belief that a level of performance will result in a level of outcome; valence refers to the value of that outcome.

Essentially, Expectation Theory and Equity Theory demonstrate the value of rewarding an employee’s investment of time and effort with appropriate compensation.

Behavior-Oriented Theories

The underlying concept of behavioral approaches to motivation is rooted in theories of “conditioning,” particularly the work of psychologist B.F. Skinner. Behaviorism stipulates that an employer should promote positive behavior and deter negative behavior, generally through a basic rewards system. Variable compensation, as found in many sales jobs, is a prime example of this concept. When an employee makes a sale, the employer provides a certain portion of income to the employee that executed that sale. This positive reinforcement serves as a behavior modifier, motivating the employee to repeat this behavior and make more sales.

Job-Oriented Theories

Job-oriented theories adhere to the view that employees are motivated to complete tasks effectively because of an innate desire to be fulfilled or to contribute and that compensation and other forms of incentives are less important to them.

Two-Factor Theory

Frederick Herzberg’s Two-Factor Theory is the most well known of the job-oriented theories, despite the fact that it has not been supported by empirical evidence. Herzberg states that salary, benefits, status, and other tangible benefits for employees can only reduce dissatisfaction and that intangibles—such as autonomy, natural interest, recognition, and the responsibility of the work itself—are the true basis of motivation.

Work Engagement Theory

Other theories, such as Work Engagement Theory, similarly propose that intellectually fulfilling and emotionally immersive work is the foundation of a motivated workforce.

Clearly, our understanding of workplace motivation could benefit from further research and empirical analysis. But the variety of theories also highlights the fact that people can be motivated by different things in different circumstances. Effective organizational management requires an understanding of these theories as well as of their possible limitations.

5.6: Employee Needs and Motivation

5.6.1: Maslow’s Hierarchy of Needs

Maslow’s Hierarchy of Needs helps managers understand employees’ needs in order to further employees’ motivation.

Learning Objective

Diagram Maslow’s Hierarchy of Needs in the context of organizational motivation and employee behaviors

Key Points

• Maslow is best known for his theory, the Hierarchy of Needs. Depicted in a pyramid, the theory explains the different levels and importance of human psychological and physical needs. It can be used by business managers to better understand employee motivation.
• The general needs in Maslow’s hierarchy include physiological needs (food and clothing), safety needs (job security), social needs (friendship), self-esteem, and self-actualization.
• Maslow’s Hierarchy of Needs relates to organizational theory and behavior due to it’s exploration of worker motivation, enabling better managerial practices and higher job satisfaction.
• Managers must be perceptive and empathetic to their employees—they must listen to what their employees’ needs are and work to fulfill them.

Key Term

self-actualization

The final level of psychological development, which can be achieved when all basic and mental needs are fulfilled.

Abraham Maslow was a social psychologist who focused on the entirety of human psychological needs rather than on individual psychological problems. Maslow is best known for his theory, the Hierarchy of Needs. Depicted in a pyramid, the theory explains the different levels of importance of human psychological and physical needs.

The general needs in Maslow’s hierarchy include physiological needs (food and clothing), safety needs (job security), social needs (friendship), self-esteem, and self-actualization. Maslow’s Hierarchy of Needs can be used by managers to better understand employees’ needs and motivations, allowing them to best provide for employees’ needs and generate high productivity and job satisfaction.

The Hierarchy of Needs: Levels of the Pyramid

Maslow’s Hierarchy of Needs

Each level of Maslow’s hierarchy outlines a specific category of need, each of which must be accomplished in a bottom-up order. Managers should correlate their managerial style with the needs of their employees.

At the bottom of the pyramid are the physiological (or basic) needs of a human being: food, water, sleep, and sex. The next level is safety needs: security, order, and stability. These two levels are important to the physical survival of the person. Once individuals have basic nutrition, shelter, and safety, they attempt to accomplish more.

The third level of need is love and belonging, which are psychological needs; when individuals have taken care of themselves physically, they are ready to share themselves with others, such as with family and friends. The fourth level is achieved when individuals feel comfortable with what they have accomplished. This is the esteem level, which includes the need to feel competent and recognized, such as through status and level of success. Then there is the cognitive level, where individuals intellectually stimulate themselves and explore. After that is the aesthetic level, which includes the need for harmony, order, and beauty.

At the top of the pyramid, self-actualization occurs when individuals reach a state of harmony and understanding because they have achieved their full potential. Once people have reached the self-actualization stage they focus on themselves and try to build their own image. They may look at this in terms of feelings such as self-confidence, or by accomplishing a set goal.

Hierarchy of Needs and Organizational Theory

Maslow’s Hierarchy of Needs relates to organizational theory and behavior because it explores a worker’s motivation. For example, some people are prepared to work just for money, but others like going to work because of the friends they have made there or the fact that they are respected by others and recognized for their good work. One conclusion that can be made from Maslow’s Hierarchy of Needs in the workforce is, “If a lower need is not met, then the higher ones are ignored.” For example, if employees are worried that they will be fired, and have no job security, they will be far more concerned about capital accumulation and ensuring their lower rungs can continue to be met (paying rent, paying bills, etc.) than about friendship and respect at work. However, if employees are wealthy enough to fulfill their basic needs, praise for good work and meaningful group relationships may be a more important motivation.

If a need is not met, staff may become very frustrated. For example, if someone works hard for a promotion and does not achieve the recognition they want, they may become demotivated and put in less effort. When a need is met it will no longer motivate the person, but the next need in the hierarchy will become important to that person. Keep in mind that it is not quite as simple in reality as in a model, and that individuals may have needs that are more complex or difficult to quantify than the hierarchy suggests. Managers must be perceptive and empathetic to their employees, they must listen to what their needs are and work to fulfill them.

5.6.2: Alderfer’s ERG Theory

Alderfer’s ERG theory, based on Maslow’s Hierarchy of Needs, outlines three core needs: existence, relatedness, and growth.

Learning Objective

Discuss Clayton Alderfer’s ERG Theory relative to employee needs and motivation within an organization

Key Points

• ERG Theory posits that there are three groups of core needs: existence (E), relatedness (R), and growth (G)—hence the acronym “ERG”. These groups align with the levels of Maslow’s Hierarchy of Needs.
• The “existence” needs describe our basic material requirements for living.
• The “relatedness” needs concern the maintaining of important interpersonal relationships.
• The “growth” needs relate to self-actualization and self-esteem.
• Alderfer also proposed that if an individual’s needs in a certain category are not met, then they will redouble their efforts toward fulfilling needs in a lower category.

Key Terms

existence

The state of being or occurring.

relatedness

The state of being connected, especially by kinship.

Clayton Paul Alderfer (b. 1940) is an American psychologist who further developed Maslow’s Hierarchy of Needs into his own ERG Theory. ERG Theory posits that there are three groups of core needs: existence (E), relatedness (R), and growth (G)—hence the acronym “ERG.” These groups align with the Maslow’s levels of physiological needs, social needs, and self-actualization needs, respectively.

The “existence” needs describe our basic material requirements for living. These include what Maslow categorized as physiological needs (such as air, food, water, and shelter) and safety-related needs (such as health and secure employment and property).

The “relatedness” needs concern the maintaining of important interpersonal relationships. These needs are based in social interactions with others and align with Maslow’s levels of love/belonging-related needs (such as friendship, family, and sexual intiamcy) and esteem-related needs (such as respect of and by others).

Finally, the “growth” needs describe our intrinsic desire for personal development. These needs align with Maslow’s levels of esteem-related needs (such as self-esteem, confidence, and achievement) and self-actualization needs (such as morality, creativity, problem-solving, and acceptance of facts).

Alderfer proposed that if an individual’s needs in a certain category are not met, then they will redouble their efforts toward fulfilling needs in a lower category. For example, if an individual’s self-esteem is suffering, they will invest more effort in the relatedness category of needs.

5.6.3: McClelland’s Need Theory

David McClelland describes three central motivational paradigms: achievement, affiliation and power.

Learning Objective

Examine what McClelland’s Need Theory proposes regarding motivating employees and fulfilling their needs

Key Points

• McClelland’s Need Theory, created by psychologist David McClelland, is a motivational model that attempts to explain how the needs for achievement, power, and affiliation affect people’s actions in a management context.
• People who are achievement-motivated are driven by the desire to master tasks and situations.
• People who are affiliation-motivated are driven by the desire to create and maintain social relationships. They enjoy belonging to a group and want to feel loved and accepted.
• People who are power-motivated are driven by the desire to influence, teach, or encourage others.
• Each individual is motivated by varying degrees of each of these three categories of needs.

Key Terms

zero-sum

Of any system in which all gains are offset by exactly equal losses.

achievement

The act of performing, obtaining, or accomplishing.

affiliation

The relationship that results from combining one thing with another.

Psychologist David McClelland developed Need Theory, a motivational model that attempts to explain how the needs for achievement, power (authority), and affiliation affect people’s actions in a management context. Need Theory is commonly often taught in management and organizational-behavior classes.

David McClelland

Psychologist David McClelland created Need Theory.

Achievement

People who are strongly achievement-motivated are driven by the desire for mastery. They prefer working on tasks of moderate difficulty in which outcomes are the result of their effort rather than of luck. They value receiving feedback on their work.

Affiliation

People who are strongly affiliation-motivated are driven by the desire to create and maintain social relationships. They enjoy belonging to a group and want to feel loved and accepted. They may not make effective managers because they may worry too much about how others will feel about them.

Power

People who are strongly power-motivated are driven by the desire to influence, teach, or encourage others. They enjoy work and place a high value on discipline. However, they may take a zero-sum approach to group work—for one person to win, or succeed, another must lose, or fail. If channeled appropriately, though, this can positively support group goals and help others in the group feel competent about their work.

Application of Need Theory

Need Theory does not claim that people can be categorized into one of three types. Rather, it asserts that all people are motivated by all of these needs in varying degrees and proportions. An individual’s balance of these needs forms a kind of profile that can be useful in determining a motivational paradigm for them. It is important to note that needs do not necessarily correlate with competencies; it is possible for an employee to be strongly affiliation-motivated, for example, but to still be successful in a situation in which his affiliation needs are not met.

McClelland proposes that those in top management positions should have a high need for power and a low need for affiliation. He also believes that although individuals with a need for achievement can make good managers, they are not generally suited to being in top management positions.

5.6.4: Herzberg’s Two-Factor Theory

Herzberg’s Two-Factor Theory states that certain factors cause job satisfaction and other factors cause dissatisfaction.

Learning Objective

Analyze Frederick Herzberg’s perspective on motivating employees through his Two-Factor Theory (also known as Motivation-Hygiene Theory)

Key Points

• According to Herzberg, intrinsic motivators and extrinsic motivators have an inverse relationship: intrinsic motivators tend to create motivation when they are present, whereas extrinsic motivators tend to reduce motivation when they are absent.
• Intrinsic motivators tend to represent less tangible, more emotional needs, such as challenging work, recognition, relationships, and growth potential.
• Extrinsic motivators tend to represent more tangible, basic needs, such as status, job security, salary, and fringe benefits.
• Extrinsic motivators are expected and so cause dissatisfaction if they are absent. Intrinsic motivators, on the other hand, can provide extra motivation. Because of this, satisfaction and dissatisfaction are independent; one does not necessarily increase exactly as the other decreases.
• Management is tasked with differentiating when more job satisfaction is needed (providing intrinsic motivators) and when less job dissatisfaction is needed (providing extrinsic motivators).

Key Terms

Two-Factor Theory

A framework, developed by Frederick Herzberg, that suggests there are certain factors in the workplace that can cause job satisfaction and a separate set of factors can cause dissatisfaction.

hygiene factors

Elements of life or work that do not increase satisfaction but that can lead to dissatisfaction if they are missing.

The Two Factors: Intrinsic and Extrinsic Motivators

Frederick Herzberg’s Two-Factor Theory, also known as Motivation-Hygiene Theory or intrinsic vs. extrinsic motivation, concludes that there are certain factors in the workplace that can cause job satisfaction and a separate set of factors that can cause dissatisfaction. It is critical to emphasize that this is not a linear relationship: the factors that cause satisfaction do not necessarily negate those that cause dissatisfaction; one does not necessarily increase exactly as the other decreases.

Extrinsic Motivators (Hygiene Factors)

Extrinsic motivators tend to represent more tangible, basic needs—i.e., the kinds of needs identified in McClelland’s “existence” category of needs in his ERG Theory or in the lower levels of Maslow’s Hierarchy of Needs. Extrinsic motivators include status, job security, salary, and fringe benefits. Managers must realize that not providing the appropriate and expected extrinsic motivators will sow dissatisfaction and unmotivated behavior among employees.

Intrinsic Motivators (Motivation Factors)

Intrinsic motivators tend to represent less tangible, more emotional needs—i.e., the kinds of needs identified in McClelland’s “relatedness” and “growth” categories of needs in his ERG Theory and in the higher levels of Maslow’s Hierarchy of Needs. Intrinsic motivators include challenging work, recognition, relationships, and growth potential. Managers must recognize that while these needs may be outside the more traditional scope of what the workplace should provide, they are absolutely critical in empowering strong individual and team performance.

Herzberg’s Theory in Context

Herzberg’s Two-Factor Theory, McClelland’s Need Theory, and Maslow’s Hierarchy of Needs all talk about higher-level psychological needs such as achievement, recognition, responsibility, and advancement. The key factor that differentiates Two-Factor Theory is the idea of expectation.

According to Herzberg, intrinsic motivators and extrinsic motivators have an inverse relationship. This is to say that intrinsic motivators tend to inspire motivation when they are present, while extrinsic motivators tend to reduce motivation when they are absent. This is because of expectation. Extrinsic motivators (e.g., salary, benefits) are expected and so will not increase motivation when they are in place, but they will cause dissatisfaction when they are missing. Intrinsic motivators (e.g., challenging work), on the other hand, can be a source of additional motivation.

If management wants to increase employees’ job satisfaction, they should be concerned with the nature of the work itself—the opportunities it presents employees for gaining status, assuming responsibility, and achieving self-realization. If, on the other hand, management wishes to reduce dissatisfaction, then it must focus on the job environment—policies, procedures, supervision, and working conditions. To ensure a satisfied and productive workforce, managers must pay attention to both sets of job factors.

5.7: Process and Motivation

5.7.1: Equity Theory

Equity theory explains the relational satisfaction in terms of fair or unfair distribution of resources within interpersonal relationships.

Learning Objective

Discuss equity theory and its motivational implications at the organizational level

Key Points

• Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship.
• If an employee feels underpaid, then that employee will experience hostility towards the organization and perhaps co-workers, which may result in the employee’s diminished performance.
• When individuals find themselves participating in inequitable relationships, they become distressed.
• Managers must monitor their employees’ earnings, discuss this with their superiors, assess efficacy, and provide intangible rewards.

Key Terms

equity theory

An attempt to explain relational satisfaction in terms of perceptions of fair or unfair distribution of resources within interpersonal relationships.

equitable

Marked by or having equity.

Motivated by Equity

Equity theory attempts to explain relational satisfaction in terms of perceptions of fair or unfair distributions of resources within interpersonal relationships. Regarded as one of many theories of justice, equity theory was first developed in 1963 by John Stacey Adams. Adams, a workplace and behavioral psychologist, asserted that employees seek to maintain equity between what they put into a job and what they receive from it against the perceived inputs and outcomes of others.

Equity theory posits that people value fair treatment, which motivates them to maintain a similar standard of fairness with their co-workers and the organization. According to the theory, equity structure in the workplace is based on the ratio of inputs (employee contributions) to outcomes (salary and other rewards).

Imbalances

Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship. Equity theory focuses on determining whether the distribution of resources is fair to both relational partners. Equity is measured by comparing the ratios of contributions and benefits of each person within the relationship. Partners do not have to receive equal benefits (such as receiving the same amount of love, care, and financial security) or make equal contributions (such as investing the same amount of effort, time, and financial resources), as long as the ratio between these benefits and contributions is similar.

Much like other prevalent theories of motivation, such as Maslow’s hierarchy of needs, equity theory acknowledges that subtle and variable individual factors affect individuals’ assessment and perception of their relationship with their relational partners. According to Adams, underpayment inequity induces anger, while overpayment induces guilt. Compensation, whether hourly or salaried, is a central concern for employees and therefore the cause of equity or inequity in most, but not all, cases.

The Employee/Organization Relationship

In any position, employees wants to feel that their contributions and work performance are being rewarded with fair pay. An employee who feels underpaid may experience feelings of hostility towards the organization and perhaps co-workers. This hostility may lead to the employee under-performing and could cause job dissatisfaction in others.

Subtle or intangible compensation also plays an important role in feelings about equity. Receiving recognition for strong job performance and being thanked can create employee satisfaction, and therefore help the employee feel worthwhile, resulting in better outcomes for both the individual and the organization.

When individuals find themselves participating in inequitable relationships, they become distressed. The more inequitable the relationship, the more distress individuals feel.

The Role of Management

Depending upon the organizational structure and its distribution of authority, the decision to provide monetary compensation for a strong work deliverable is not always in the hands of an employee’s direct manager. As a result, managers must monitor their direct reports’ earnings, discuss this with their superiors, assess efficacy, and provide intangible rewards (such as recommendations, gratitude, authority, new projects, etc.). Creating and maintaining equity is a responsibility of all managers.

5.7.2: Assessing and Restoring Equity

The assessment and restoration of equity helps improve employee performance and organizational behavior.

Learning Objective

Distinguish the core components of equity theory that seek to measure equity accurately and restore equity when appropriate

Key Points

• Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and this distress leads to efforts to restore equity within the relationship.
• Individuals consider themselves treated fairly if they perceive the ratio of their own inputs to outcomes to be equivalent to those around them.
• In any position, employees want to feel that their contributions and work performance are being fairly rewarded. If this is not the case, management must intervene and either renegotiate or replace dissatisfied individuals.

Key Terms

organization

A group of people or other legal entities with an explicit purpose and written rules.

human resources

The personnel department of an organization, dealing with the recruitment, administration, management and training of employees.

Organizational Behavior

Similar to human resources management, organizational behavior management (OBM) is an important aspect of management. OBM applies psychological principles of organizational behavior and the experimental analysis of behavior to organizations to improve individual and group performance. The areas of application may include: systems analysis, management, and training and performance improvement. Equity theory plays a role in analyzing organizational behavior.

Definition of Equity Theory

Equity theory suggests that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship. The theory focuses on determining whether the distribution of resources is fair to both relational partners. Equity is measured by comparing the ratios of contributions and benefits of each person within the relationship.

Equity theory

The core concept of equity theory amounts to each party’s inputs and outcomes equating.

Assessing Equity

Individuals consider themselves treated fairly when they perceive the ratio of their inputs to outcomes to be equivalent to those around them. In practice, all else being equal, this means an employee would find it acceptable for a more senior colleague to receive higher compensation, since the value of the senior employee’s experience (and input) is higher. Employee job satisfaction often relies on comparisons with their co-workers.

If an employee observes another employee receive more recognition and rewards for contributions—even when both have performed the same amount and quality of work—the employee who receives fewer rewards will experience dissatisfaction. That employee may feel under-appreciated as a consequence. Equity theory proposes that rewards (outcomes) should be directly related to the quality and quantity of employees’ contributions (inputs). If both employees in this situation receive the same reward, the workforce is more likely to recognize that the organization is fair, observant, and appreciative.

Managers are tasked with assessing equity: identifying both the quantity and quality of a given individual’s inputs and comparing that to his or her overall compensation. Managers are also responsible for discussing this situation with their subordinates, ensuring that they feel their contributions are being matched by their salary and other forms of compensation. While this concern also falls within the human resources frame, the manager is more directly involved with employee’s actual contributions (and thus more accurate in assessing value).

Restoring Equity

In any position, employees want to feel that their contributions and work performance are being fairly compensated. If this is not the case, management must intervene and either renegotiate or replace the dissatisfied individual. Workers have a right to be compensated in a manner that reflects their value; if they are not, then management must restore this equity or risk losing valuable talent.

Organizations can ensure collective rewards are maximized through the use of accepted systems for equitably rewarding members. Systems of equity will evolve within groups, and members must encourage other members to accept and adhere to these systems. The only way groups can ensure equitable practices are observed is by making it more profitable to behave equitably than inequitably. Thus, an organization will generally reward members who treat others equitably and generally punish (increase the cost for) members who treat others inequitably.

5.7.3: Expectancy Theory

Expectancy theory deals with mental processes regarding choices and behaviors.

Learning Objective

Analyze Vroom’s expectancy theory to assess the accuracy and effectiveness of motivating based upon expectancy, instrumentality, and valence

Key Points

• Expectancy theory proposes that individuals decide to act in a certain way because they are motivated to select a behavior over other behaviors based on their expectation of the result.
• The individual chooses based on estimates of how well the expected results of a given behavior are going to match up with the desired results.
• Expectancy theory explains the behavioral process of why individuals are motivated to choose one behavioral option over another. It also explains how they make decisions to achieve the outcome that they perceive as most valuable.

Key Terms

instrumentality

The quality or condition of serving a purpose, being useful.

expectancy theory

A framework that holds that people decide to act in a certain way because they are motivated to select a specific behavior over other behaviors based on the expected result.

valence

A one-dimensional value assigned to an object, situation, or state that can usually be positive or negative.

Overview

Expectancy theory is about the mental processes involved in making choices. In organizational behavior, expectancy theory embraces Victor Vroom’s definition of motivation. Vroom proposed that a person decides to behave in a certain way, selecting one behavior over other behaviors, based on the expected result of the selected behavior. For example, people will be willing to work harder if they think the extra effort will be rewarded.

In essence, the motivation behind chosen behavior is determined by the desirability of the expected outcome. At the theory’s core is the cognitive process of how an individual processes the different motivational elements. Processing is done before an individual makes the final choice. The expected result, therefore, is not the sole determining factor in the decision of how to behave because the person has to predict whether or not the expectation will be fulfilled.

Vroom’s Expectancy Theory

In 1964, Vroom defined motivation as a process controlled by the individual that governed choices among alternative forms of voluntary activities. Individuals make choices based on estimates of how well the expected results of a given behavior are going to match up with or eventually lead to the desired results.

In Vroom’s analysis, the basis for motivation is threefold:

• the individual’s expectancy that effort will lead to the intended performance
• the instrumentality of this performance in achieving a certain result
• the desirability of the result (known as valence) to the individual

Vroom introduces three variables within his expectancy theory: valence (V), expectancy (E), and instrumentality (I). These three elements also have clearly defined relationships: effort-performance expectancy (E>P expectancy), performance-outcome expectancy (P>O expectancy).

These three components of expectancy theory (expectancy, instrumentality, and valence) fit together in this fashion:

• Expectancy: Effort → Performance (E→P)
• Instrumentality: Performance → Outcome (P→O)
• Valence: V(O)

Effort → Performance (E→P): Expectancy is the belief that an effort (E) will result in attainment of desired performance (P) goals. Usually, this belief is based on an individual’s past experience, self-confidence, and the perceived difficulty of the performance standard or goal. Factors associated with the individual’s expectancy perception are competence, goal difficulty, and control.

Performance → Outcome (P→O): Instrumentality is the belief that a person will receive a desired outcome (O) if the performance expectation is met. This outcome may come in the form of a pay increase, promotion, recognition, or sense of accomplishment. Instrumentality is low when the outcome is the same for all possible levels of performance.

V(O): Valence is the value individuals place on outcomes (O) based on their needs, goals, values, and sources of motivation. Factors associated with the individual’s valence are values, needs, goals, preferences, sources of motivation, and the strength of an individual’s preference for a particular outcome.

Implications

Expectancy theory can help managers understand how individuals are motivated to choose among various behavioral alternatives. To enhance the connection between performance and outcomes, managers should use systems that tie rewards very closely to performance. Managers also need to ensure that the rewards provided are deserved and wanted by the recipients. To improve the connection between effort and performance, managers should use training to improve employee capabilities and help employees believe that added effort will in fact lead to better performance .

5.7.4: Goal-Setting Theory

People perform better when they are committed to achieving certain goals, enabling businesses to benefit from employing goal-setting theory.

Learning Objective

Apply goal-setting theory to the process and motivation considerations inherent in organizational behavior and business procedure

Key Points

• Studies of goal-setting suggest that it is an effective tool for making progress, as long as managers ensure that participants are clearly aware of what is expected from them.
• Goals that are difficult to achieve and specific tend to increase performance more than goals that are not.
• On a personal level, setting goals helps people work towards their own objectives (most commonly, financial or career-based goals).
• Managers should not constantly drive motivation, or keep track of an employee’s work on a continuous basis. Instead, they should use goals, which have the ability to function as a self-regulatory mechanism.
• Managers should also keep track of performance to allow employees to see how effective they have been in attaining their goals.

Key Terms

motivation

Willingness of action, especially in behavior.

productivity

The rate at which goods or services are produced by a standard population of workers.

Overview

People perform better when they are committed to achieving certain goals. Factors that ensure commitment to goals include:

• The importance of the expected outcomes of goal attainment
• Self-efficacy, or belief that the goal can be achieved
• Promises or engagements to others, which can strengthen level of commitment

Aim for the goal

Goal-setting is closely tied to performance. Those who set realistic but challenging goals are likely to perform better than those who do not.

Goal-setting is a key component of performance in a business setting, but certain principles apply. Goals that are difficult to achieve and specific tend to increase performance more than goals that are not. A goal can become more specific by attaching a quantity to it (for example, “increase productivity by 50 percent”) or by defining certain tasks that must be completed.

Goals in Business (Motivation)

Managers cannot constantly drive motivation, or keep track of an employee’s work on a continuous basis. Goals are therefore an important tool for managers, because goals have the ability to function as a self-regulatory mechanism that gives an employee a certain amount of guidance. Shalley, Locke, and Latham have identified four ways goal-setting can affect individual performance:

1. Goals focus attention toward goal-relevant activities and away from goal-irrelevant activities.
2. Goals serve as an energizer. Higher goals induce greater effort, while low goals induce lesser effort.
3. Goals affect persistence.
4. Goals activate cognitive knowledge and strategies that help employees cope with the situation at hand.

Locke et al. examined the behavioral effects of goal-setting, concluding that 90 percent of laboratory and field studies involving specific and challenging goals led to higher performance than those involving easy or no goals. While some managers believe it is sufficient to urge employees to “do their best,” Locke and Latham have a contrasting view. They propose that people who are told to “do their best” generally do not. To elicit some specific form of behavior from another person requires giving the person a clear view of what is expected. A goal is therefore vital, as it helps an individual focus his or her efforts in a specific direction.

However, when management merely dictates goals, employee motivation to meet these goals is diminished. To increase motivation, employees should participate in the goal-setting process.

Goals and Feedback

Managers should track performance so that employees can see how effective they have been in attaining their goals. Without proper feedback channels, employees find it impossible to adapt or adjust their behavior. Goal-setting and feedback go hand-in-hand. Without feedback, goal-setting is unlikely to work.

Providing feedback on short-term objectives helps to sustain an employee’s motivation and commitment to a goal. When giving feedback, managers should:

• Create a positive context
• Use constructive and positive language
• Focus on behaviors and strategies
• Tailor feedback to the needs of the individual worker
• Make feedback a two-way communication process

5.7.5: Setting the Right Goals

People perform better when they are committed to achieving certain goals, emphasizing the importance of strategic goal setting.

Learning Objective

Examine the inherent motivational value in setting meaningful goals and objectives in the organizational behavior frame

Key Points

• Setting goals is a process that requires buy-in from both the management and employee; it is best executed using tools such as goal-setting theory.
• The SMART model illustrates the goal-setting aims, where objectives are identified and pursued through being specific, measurable, achievable, realistic, and time-oriented.
• According to Locke and Latham, the effectiveness of goal setting can be explained by two aspects of Temporal Motivation Theory (TMT): the principle of diminishing returns and temporal discounting.
• Combining Locke and Latham’s perspective with SMART goal setting, individuals should focus on taking small steps towards larger objectives through specific, measurable, attainable, realistic, and timely goals.

Key Terms

diminishing returns

A condition in which additional inputs into an organization, project, or process produce progressively fewer or lower-quality outputs and may decrease the total quantity or quality of outputs.

quantitatively

Measurable numerically; demonstrated through numbers.

Introduction to Goal Setting

Goal setting involves establishing specific, measurable, achievable, realistic and time-targeted (SMART) goals. Work on the theory of goal-setting suggests that it is an effective tool for progress, primarily through ensuring that participants in a group with a common goal are clearly aware of what is expected from them (and able to measure it). On a personal level, setting goals helps people work towards their own objectives—most commonly financial or career-based goals.

Goal setting and achievement

Athletes set goals during the training process. Through choice, effort, persistence, and cognition, they can prepare to compete.

SMART Goals

Setting goals requires both the foresight to perceive future obstacles and a scale in which to measure and benchmark progress. Setting effective goals and identifying the the appropriate way in which to pursue these goals are both important elements of successfully implementing an effective motivational strategy. The SMART method for goal setting effectively summarizes the necessary steps to take when setting objectives:

1. Specific: Establishing the appropriate scope of goals is difficult, and it is important to be as specific as possible to ensure successful implementation.
2. Measurable: The ability to measure and assess progress quantitatively is useful in goal setting, as it provides motivational checkpoints and ensures progress stays on track.
3. Achievable: Ensuring goals are achievable is important in successfully pursuing goals. People have a natural tendency to challenge themselves, but it is important to stay within the confines of ability.
4. Realistic: Similar to achievable, realistic goal setting requires a grounded approach of identifying tangible, results-oriented objectives.
5. Time-targeted: Establishing deadlines is essential for goals, particularly from a motivational perspective. Knowing the time frame necessary in which to complete the goal is important in ensuring the end product will be useful and relevant to the business.

Deriving Goal Setting from Temporal Motivation Theory

Locke and Latham note that goal-setting theory lacks “the issue of time perspective.” Taking this into consideration, Steel and Konig use Temporal Motivation Theory (TMT) to account for goal-setting’s effects and suggest new hypotheses regarding two moderators: goal difficulty and proximity.

Motivation over Time

The idea of time perspective is simpler than it sounds. Take an example of a university student who has 30 days to study for a final exam. On day 1, when the exam is still a month away, the student does not feel the time motivation very strongly. They are much more likely to choose an activity that is more enjoyable than studying. However, as the test approaches, the student will increasingly tend to choose studying due to the time perspective.

Larger Objectives vs. Series of Smaller Objectives

With this example in mind, it seems logical that structuring a project based on a series of smaller goals with closer deadlines rather than on one faraway end goal is likely to be more motivating. This is also supported by the idea of diminishing returns, which posits that for each unit of investment (be it a minute of time or a dollar) into a given process, less output will be produced. Therefore, combining a series of small objectives (processes) will be more motivating, causing less output to be lost to diminishing returns over time. It is related to the expression “the sum of the parts can be greater than the whole.”

SMART Goal-Setting and TMT

TMT (which draws from these two theories of time perspective and diminishing returns) and SMART goal setting together therefore tell us that to maximize motivation and therefore output, managers should divide projects into several more immediate, specific, and realistic sub-goals.

5.8: Reinforcement and Motivation

5.8.1: Reinforcement as a Management Tool

Reinforcement is a process of strengthening desirable behaviors, often through the use of rewards.

Learning Objective

Describe the role of behavioral reinforcement in organizational management

Key Points

• Reinforcement is a term used in behavioral analysis and in a specific kind of intentional behavior change known as operant conditioning. It is a process of increasing the incidence of a (measurable) desirable behavior.
• Reinforcement is a process in which someone is given a reward (i.e., “positive reinforcement”) or is spared an unpleasant consequence (i.e., “negative reinforcement”) to incentivize a certain desirable behavior.
• Incentive programs (e.g., bonuses, commissions, etc.) are examples of rewards (i.e., positive reinforcers) managers can give their employees to increase desirable results, such as sales.

Key Terms

Positive Reinforcement

Giving a desired reward when a behavior is performed to increase how often the person repeats the behavior.

reinforcement

The process of increasing the incidence of a directly measurable behavior.

negative reinforcement

The removal of an unpleasant condition or consequence when a behavior is performed to increase how often the behavior is repeated.

Defining Reinforcement

Reinforcement is a term used in the context of behavioral analysis and in a specific kind of intentional behavior change known as operant conditioning. It is a process of increasing the incidence of a (measurable) behavior. Very basic examples of such behaviors include things like the rate of pulling a lever, the duration of holding down a button, or the speed with which a switch is flipped after a certain noise is sounded.

Positive and Negative Reinforcement

In reinforcement, the rate of the target behavior is increased by giving a reward (i.e., “positive reinforcement”) or by removing an unpleasant stimulus (i.e., “negative reinforcement”) immediately or shortly after each occurrence of the behavior. Giving a monkey a banana for performing a trick is an example of positive reinforcement; quieting a constant unpleasantly loud noise when a rat pushes a button is an example of negative reinforcement.

Reinforcement as a Management Tool

In a management context, reinforcers include salary increases, bonuses, promotions, variable incomes, flexible work hours, and paid sabbaticals. One particularly common positive-reinforcement technique is the incentive program, a formal scheme used to promote or encourage specific actions, behaviors, or results from employees over a defined period of time. Incentive programs can reduce turnover, boost morale and loyalty, improve wellness, increase retention, and drive daily performance among employees. Motivating staff will in turn help business outcomes and increase efficiency.

Managers are responsible for identifying what behaviors should be promoted and what should be discouraged and must carefully consider organizational objectives in this process. Implementing rewards and punishments that parallel the organization’s goals help to create a work culture and work environment that embody those goals and objectives.

Example of an Incentive Program

Let’s take an IT sales team as an example. The team’s overarching goal is to sell their new software to businesses. The manager may want to emphasize sales to partners of a certain size (i.e., big contracts). To this end, the manager may reward team members who gain clients of 5,000 or more employees with a commission of 5% of the overall sales volume for each such partner. This reward of a 5% commission reinforces the behavior of closing big contracts, strongly motivating team members to work toward that goal and thus likely increasing the number of big contracts closed.

Features of a Successful Incentive Program

To facilitate the creation of a profitable program, every feature of the incentive program must be tailored to the participants’ interests. A successful incentive program requires clearly defined rules, suitable rewards, efficient communication strategies, and measurable success metrics. By adapting each element of the program to fit the target audience, companies are better able to engage program participants and enhance overall program efficacy.

Reinforcing good behavior

This soldier reinforces her dog’s desirable behavior by giving it a treat.

5.8.2: Punishment as a Management Tool

Punishment is the imposition of a negative consequence with the goal of reducing or stopping someone’s undesirable behavior.

Learning Objective

Recognize the uses of punishment as a motivational tool in the context of organizational behavio

Key Points

• The purpose of punishment is to encourage and enforce “proper” behavior as defined by a group, an organization, or society through the use of negative consequences.
• Punishment, like reinforcement, is a term used in behavioral analysis and in a specific kind of intentional behavior change known as operant conditioning.
• Whereas reinforcement is used to increase desirable behavior, punishment is used to decrease undesirable behavior through the application of a negative consequence (positive punishment) or through the removal of something the person enjoys (negative punishment).
• Punishment can be used in a business context to prevent employees from doing something the organization or manager considers undesirable or wrong.

Key Term

punishment

The act of imposing a sanction.

Defining Punishment

Punishment is a term used in the context of behavioral analysis and in a specific kind of intentional behavior change known as operant conditioning. It is a process of decreasing the incidence of a (measurable) behavior. Very basic examples of such behaviors include things like the rate of pulling a lever, the duration of holding down a button, or the speed with which a switch is flipped after a certain noise is sounded.

Positive and Negative Punishment

In punishment, the rate of the target behavior is decreased by imposing a negative consequence (i.e., “positive punishment”) or by removing a pleasant or desired stimulus (i.e., “negative punishment”) immediately or shortly after each occurrence of the behavior. Shocking a rat for turning left instead of right in a maze is an example of positive punishment; taking away a child’s toy after he hits his brother is an example of negative punishment.

Punishment as a Management Tool

The purpose of punishment is to prevent future occurrences of a given socially unacceptable or undesirable behavior. According to deterrence theory, the awareness of a punishment will prevent people from performing the behavior. This can be accomplished either through punishing someone immediately after the undesirable behavior so that they are reluctant to perform the behavior again or through educating people about the punishment preemptively so they are reluctant to perform the behavior at all. In a management context, punishment tools can include demotions, salary cuts, and terminations (fires).

In business organizations, punishment and deterrence theory play a vital role in shaping culture to be in line with operational expectations and in avoiding conflicts and negative outcomes both internally and externally. If employees clearly know what they are not supposed to do, they generally try to avoid doing it. Prevention is a much cheaper and easier approach than waiting for something bad to happen, so preemptive education regarding rules and penalties for rule violation is common practice.

Punishment of the Paddle

This is an old form of punishment.

5.8.3: Managerial Perspectives on Motivation

Managers can employ motivational theory and reinforcement tools to motivate employees and increase efficiency.

Learning Objective

Explain the managerial importance of understanding motivational theories as they pertain to an organization’s employees

Key Points

• Motivating employees is a primary responsibility of management, as motivational management enables higher outputs and job satisfaction from employees.
• While there is a great deal of research on motivation from the perspective of both management and psychology, a few specific psychological theories can be applied specifically to employee motivation.
• According to psychological theories of motivation, management is in the difficult position of identifying and fulfilling needs for different employees who will, in turn, require distinct motivational assistance.
• Managers may rely on a few tools to steer the direction of motivation. These include positive and negative reinforcements and positive and negative punishment.

Key Term

motivation

Willingness to perform an action, especially a behavior; an incentive or reason for doing something.

Psychological Theories and Motivation

Motivation is the psychological boost that helps people achieve high performance and reach goals. Motivating employees is a primary managerial responsibility of management, as motivational management enables higher outputs and job satisfaction from employees.

While studies have produced a great deal of research on motivation, from the perspective of both management and psychology, a few psychological theories can be applied specifically to employee motivation. Using modern research and understanding what drives behavior are the focal points of organizational behavior study, and managers should actively apply these psychological frameworks to their everyday management strategies and considerations. These frameworks can be coupled with concepts of reinforcement and punishment as tools managers use to emphasize or discourage specific behaviors.

Need-based Theories

Need-based theories of motivation focus on an employee’s drive to satisfy needs by working. Needs range from basic physiological needs for survival to higher-level emotional needs, like belonging and self-actualization.

From the perspective of the manager, Maslow’s model (see below image) is highly useful in drawing a few simple yet important conclusions. First, if employees are not being paid enough to satisfy the bottom two tiers of the hierarchy (for example, pay rent, buy food, etc.), then they will be unmotivated to create a strong social environment, accomplish goals, or be creative. Salary, therefore, must be high enough to match or exceed a reasonable standard of living. Secondly, without a good culture for social interaction, employees will find it difficult to achieve high levels of creativity and problem-solving. If managers want to capture maximum value from employees, they must supply each component on this list—to the best of their ability—in reimbursements, culture, and goal setting.

Maslow’s Hierarchy of Needs

The hierarchy underscores how management should assess employees’ needs. Salary encompasses the bottom two tiers (safety-related and physiological needs), while social and objective-based motivators address the higher needs (love and belonging, esteem, and self-actualization).

Equity Theory

Equity theory is derived from social-exchange theory. It explains motivation in the workplace as a cognitive process where the employee evaluates the balance between inputs (or efforts) in the workplace and the outcomes (or rewards) that are received or anticipated.

For management, the implications are similar to those of Maslow’s lower-level needs. Employees expect that they will receive an equivalent reimbursement for the value they create. Management must assess the value of the job objectively and clearly explain the exchange (time and efforts for money/benefits/job satisfaction) to the employee prior to the onset of work. Equity must be maintained for proper motivation, and managers are responsible for establishing equity within the organization.

Reinforcement and Punishment

Based upon the psychological theories of motivation discussed here, management is in the difficult position of identifying and fulfilling needs for different employees (who will in turn require different motivational assistance). To accomplish this need fulfillment, managers have a few tools to employ that allows them to steer the direction of motivation. These include positive and negative reinforcements and positive and negative punishments.

As noted above in Maslow’s hierarchy, employees are motivated in a linear fashion (fulfilling base needs will result in higher needs). As a result, a manager must recognize what level of the hierarchy an employee is on before using reinforcement or punishment. If the employee is more concerned about salary and creating enough capital to live comfortably, a manager could positively reinforce certain behaviors with bonus pay or raises. If an employee is pursuing esteem, managers can apply promotions or employee-achievement awards.

Similarly, punishments can be effective in emphasizing motivational successes and failures as well. Using equity theory, managers can consider employees’ actions in context with desired outcomes. For example, if an employee is often late and misses important meetings, resulting in a loss of revenue for the company, equity theory permits that this employee should be punished with lower pay. In this situation, equity theory allows management to motivate through punishing employees who do not create the required returns to pay their salaries.

5.9: Job Design and Motivation

5.9.1: Defining Job Design

Job design is the systematic and purposeful allocation of tasks to individuals and groups within an organization.

Learning Objective

Compare and contrast the multitude of job-design approaches and perspectives available in the organizational field

Key Points

• The key inputs for a strong job design are a task, motivation, resource allocation and a compensation system.
• Taylorism, or scientific management, is the original job-design theory. It stresses standardization of tasks and proper training of workers to administer the tasks for which they are responsible.
• The Socio-Technical Systems Approach is a theory that maps the evolution from individual work to work groups. The organization itself is structured to encourage group autonomy and productivity.
• The Core Characteristics Model connects job characteristics to the psychological states that the worker brings to the job. It emphasizes designing jobs so that they lead to desired outcomes.
• Taking into account these various theoretical models, job design is best described as specifying a task with enough context to communicate clearly and concisely what is expected of a given employee.

Key Term

empower

To give people more confidence or strength to do something, often by enabling them to increase their control over their own life or situation.

Job Design Overview

Job design is the allocation of specific work tasks to individuals and groups. Allocating jobs and tasks means specifying the contents, method, and relationships of jobs to satisfy technological and organizational requirements, as well as the personal needs of jobholders.

Dick and Carey Systems Approach Model (Instructional Design)

The figure shows how an instructional system is designed. It represents a model of a job design with a specific application (instruction).

Key Elements of Job Design

To understand job design, it is helpful to identify some key elements and their relationship with job design processes.

• A task can be best defined as a piece of assigned work expected to be performed within a certain time. Job designers must strictly and thoroughly identify tasks that need completion.
• Motivation describes forces within the individual that account for the level, direction, and persistence of effort expended at work. Individuals need to be compelled, excited, and passionate to do their work. Managers should design jobs that motivate employees.
• Resource allocation occurs when an organization decides to appropriate or allocate certain resources to specific jobs, tasks, or dilemmas facing the organization. In job design, it is necessary to identify and structure jobs in a way that uses the company’s resources efficiently. Appropriate resource allocation allows large organizations to foster and develop innovation in their workforce and underscores strategy through distribution.
• Reward systems also play a role in job design. Reward systems include compensation, bonuses, raises, job security, benefits, and various other reward methods for employees. An outline or description of reward packages should be established when constructing jobs.

Theoretical Models of Job Design

Organizations may employ various theoretical approaches for job design. These include Taylorism, Socio-Technical Systems Approach, Core Characteristics Model, and Psychological Empowerment Theory. Each approach emphasizes different aspects to be considered in effective job design.

Taylorism

Taylorism, also known as scientific management, is a foundation for systematic job design. Frederick Taylor developed this theory in an effort to develop a “science” for every job within an organization according to the following principles:

• Create a standard method for each job.
• Successfully select and hire proper workers.
• Effectively train these workers.
• Support these workers.

The Socio-Technical Systems Approach

The Socio-Technical Systems Approach is based on the evolution from individual work to work groups. This approach has the following guiding principles:

• The design of the organization must fit its goals.
• Employees must be actively involved in designing the structure of the organization.
• Control of variances in production or service must be undertaken as close to their source as possible.
• Subsystems must be designed around relatively self-contained and recognizable units of work.
• Support systems must fit in with the design of the organization.
• The design should allow for a high-quality working life.
• Changes should continue to be made as necessary to meet changing environmental pressures.

Core Characteristics Model

Another modern job design theory is the Core Characteristics Model, which maintains five important job elements that motivate workers and performance:

• Skill variety
• Task identity
• Task significance
• Autonomy
• Job feedback

The individual elements are then proposed to lead to positive outcomes through three psychological states:

• Experienced meaningfulness
• Experienced responsibility
• Knowledge of results

Psychological Empowerment Theory

Psychological Empowerment Theory posits that there is a distinction between empowering practices and cognitive motivational states. When individuals are aware of the impact they have, they benefit more than if they cannot attribute positive impact to any of their actions.

Overall Trend

Many more iterations of job design theory have evolved, but general trends can be identified among them: job design is moving towards autonomous work teams and placing added emphasis on the importance of meaning derived from the individual.

5.9.2: Job Characteristics Theory

The Job Characteristics Theory is a framework for identifying how job characteristics affect job outcomes.

Learning Objective

Analyze the core characteristics, psychological states, and work outcomes in the Job Characteristics Theory, as identified by Hackman and Oldham

Key Points

• The Job Characteristics Theory (JCT), developed by Hackman and Oldham, is widely used as a framework to study how particular job characteristics affect job outcomes, including job satisfaction.
• The five job characteristics are skill variety, task variety, task significance, autonomy, and feedback.
• Three different psychological states determine how an employee reacts to job characteristics: experienced meaningfulness, experienced responsibility for outcomes, and knowledge of the actual results.
• Job outcomes, such as satisfaction and motivation, are the synthesis of core characteristics and psychological states.

Key Terms

characteristic

A distinguishable feature of a person or thing.

job analysis

The formal process of identifying the content of a position within an organization in terms of activities involved and attributes needed to perform the work, as well as major job requirements.

Core Characteristics

The Job Characteristics Theory (JCT), also referred to as Core Characteristics Model and developed by Hackman and Oldham, is widely used as a framework to study how particular job characteristics impact job outcomes, including job satisfaction. The theory states that there are five core job characteristics:

1. Skill variety
2. Task identity
3. Task significance
4. Autonomy
5. Feedback

Each job has these characteristics to a greater or lesser extent. No one combination of characteristics makes for the ideal job; rather, it is the purpose of job design to adjust the levels of each characteristic to attune the overall job with the worker performing it. This alignment is important because the worker brings psychological states to bear upon the job that affect job outcomes when combined with the core characteristics.

Motivating potential score

The Job Characteristics Theory uses this equation to estimate the overall motivation inherent in a job design based upon the five core characteristics.

Psychological States

The core characteristics affect three critical psychological states of the workers doing the job:

1. Experienced meaningfulness
2. Experienced responsibility for outcomes
3. Knowledge of the actual results

The job characteristics directly derive the three states. Indeed, the first three characteristics (skill variety, task variety and task significance) pertain to the meaningfulness of the work. Autonomy directly correlates to responsibility for outcomes, and knowledge of the actual results relates to feedback. Pictured as a process flow, the characteristics and psychological states operate in continuous feedback loop that allows employees to continue to be motivated by thoroughly owning and understanding the work in which they are involved.

Work Outcomes

The combination of core characteristics with psychological states influences work outcomes such as:

• Job satisfaction
• Absenteeism
• Work motivation

Therefore, the goal should be to design the job in such a way that the core characteristics complement the psychological states of the worker and lead to positive outcomes. The five core job characteristics can be combined to form a motivating potential score for a job that can be used as an index of how likely a job is to affect an employee’s attitudes and behaviors. Analyses of studies of the model provide some support for the validity of the Job Characteristics Theory.

5.9.3: Tactics for Improving Fit

Ways of improving job fit include assessing employee activities through various tools to increase employee satisfaction and efficiency.

Learning Objective

Describe ways in which management and supervisors can improve job design to fit employee and organizational needs

Key Points

• The flexibility to tailor job design more precisely for both organizational effectiveness and employee job satisfaction is a significant, ongoing part of the job design process.
• If a job is well designed, then its required competencies and responsibilities are explicit and clear.
• Training is meant to develop in the employee the skills required to improve job fit as the individual enters the workforce.
• Analyzing the outcomes of a given job within the organization, both from the task perspective and the employee perspective, can assist in improving fit.
• Supervisors can use interviews, surveys, observations, questionnaires, and checklists to observe efficacy of job design and improve fit for each employee.

Key Term

job fit

Correlation between a given position’s roles, responsibilities, and objectives and the skills and competencies of the individual holding that position.

The Job Fit Template

The basis for improving fit between the employee and the job is striking a balance between job design and individual—crafting the job in such a way that it complements the employee’s individual skills, aspirations, personality, and attributes. Job design is usually completed prior to hiring the individual who then performs the identified duties. As a result, flexibility to tailor the job design for both organizational effectiveness and employee job satisfaction is a significant, ongoing part of the job design process.

If a job is well designed, then the competencies it requires and responsibilities it involves are explicit and clear. This design becomes the foundation for the job description, which is a more exact picture of the job’s nature and which comprises the following:

• The title and duties the job fulfills
• Who supervises the employee holding the job
• Experience and qualifications expected from an applicant

The job description outlines the general attributes of the person for whom the job is designed and serves as the basis for improvement and modification during the improvement process.

Training

The first step in improving fit for a given job design is training. Once an individual is hired to perform a specific set of duties, both management and human resources should assist in preparing the individual to accomplish these tasks. In this process, the organization is responsible for improving fit by supplying all of the necessary tools, contacts, and information employees will need to accomplish their objectives.

Job Analysis

Analyzing the outcomes of a given job within the organization, both from the task perspective and the employee perspective, can assist in improving fit by ensuring that the employee is both satisfied and accomplishing the desired objective. Job analysis employs a series of steps which enable a supervisor to assess a given employee/job fit and to improve the fit, if necessary. These steps include:

• Observation: The simplest method of assessing how a job and employee fit is observing the employee at work. The manager may find it useful to ask a few questions during this process, but it is important not to make the employee uncomfortable (which would skew the results).
• Survey/Questionnaire: Providing the employee with a survey is another effective data-collection strategy. A survey should provide dimensions of the job and allow the experts in that specific role to weigh the importance of each component. Supervisors can also gather data on what is working and what is not, allowing them to edit and improve task assignments.
• Interviews: One-on-one, formal or informal interviews are also a useful tool in gathering data about the employee, allowing the supervisor to obtain more details than a survey provides. In this situation, the supervisor can also customize each discussion to become more familiar with the personality, levels of satisfaction, and perceived efficiency of each employee.
• Checklist: Another method of improving job fit is to create a checklist. Employees or the supervisor can fill these out, identifying what tasks are being done early, on-time, or later (they can also note quality and resource efficiency).

Questionnaire

Employee questionnaires can be a useful method of assessing job fit.

5.10: Compensation and Motivation

5.10.1: Monetary Employee Compensation

Monetary compensation can be either guaranteed (base) pay or variable pay and positively correlates with job satisfaction.

Learning Objective

Identify the different cash compensation models (i.e., guaranteed and variable) and the behavioral implications of using monetary compensation

Key Points

• The basic element of guaranteed pay is the base salary, paid on an hourly, daily, weekly, bi-weekly, or monthly rate.
• Variable pay is a monetary (cash) reward, such as a bonus or commission, that is contingent on performance or results achieved.
• For many years, bonuses have been considered an incentive program that reinforces positive and efficient behavior among employees.
• Generally speaking, employees who feel that they are underpaid relative to their skill levels do not perform as well as those who feel that they are appropriately compensated.

Key Terms

commission

A fee charged by an agent or broker for carrying out a transaction; for example, a finder’s fee.

Variable Pay

A monetary (cash) reward that is contingent on discretion, performance, or results achieved.

Base Pay

Monetary compensation includes both guaranteed (base) and variable pay. The basic element of guaranteed pay is the base salary, paid on an hourly, daily, weekly, bi-weekly, or monthly rate. Many countries dictate the minimum base salary by defining a minimum wage.

U.S. Minimum Wage Map, 2007

A map of the United States comparing state minimum wage laws to the federal minimum wage. Kansas is the only state with a minimum wage rate lower than the federal one.

Individual skills and experience levels of employees leave room for differentiation of income levels within the job-based pay structure. In addition to base salary, other pay elements are based solely on employee/employer relations, such as salary and seniority allowance. Salaries and wages are tied to a job description that lays out the expectations and responsibilities of an employee. Management can refer to job descriptions to determine whether employees qualify for raises.

Variable Pay

Variable pay is a monetary reward that is contingent on discretion, performance, or results achieved. There are different types of variable pay plans, such as bonus schemes, sales incentives (commission), overtime pay, and more. Variable pay is common in industries such as real estate or insurance, where pay is based on commission or the amount of sales generated by the employee. In a typical variable pay plan, the salesperson might receive 50 percent of every dollar he brings in up to a defined level of revenue, after which pay increases to 85 percent for every dollar earned.

Bonuses represent another type of variable pay, one based on an employee’s performance during a certain period of time. Employees who are performing particularly well during a year may receive an additional bonus that is above their base salary or commission percentage.

Monetary Compensation and Behavior

From a behavioral perspective, bonuses have been studied to ascertain their effectiveness as an employee incentive to improve performance. B.F. Skinner, a behavioral psychologist, studied behavioral reactions to extrinsic environmental consequences such as reinforcement or punishment. Drawing on Skinner’s perspective, bonuses have served for a number of years as an incentive program to reinforce positive, efficient behavior among employees.

Additionally, behavioral and organizational psychologists have considered salaries in comparison with skill level to determine how employees perform based on their wage level. The results of these studies show that employees who feel that they are underpaid relative to their skill levels will not perform as well as they would if they felt that they were appropriately compensated.

The effect of compensation on employee job satisfaction has also been studied. Not surprisingly, employees who are paid more are more satisfied with their jobs and less inclined to leave their employers—up to a certain point (i.e., salary level). While the amount of that exact point is frequently debated, experts generally agree that somewhere beyond the ballpark of a six-figure salary range reflects diminishing returns (i.e., no additional benefit to the organization for paying the individual more).

5.10.2: Non-Monetary Employee Compensation

Non-monetary compensations (e.g., benefits) are essential in recruiting skilled employees and maintaining a satisfied workforce.

Learning Objective

Discuss non-monetary compensation benefits within the larger framework of motivation

Key Points

• Examples of non-monetary compensation include benefits, flex-time, time off, free or discounted parking, gym membership discounts, retirement matching, mentoring programs, tuition assistance, and childcare.
• A benefits plan is designed to address a specific need and is often provided in a non-cash form. Many countries dictate certain minimum benefits, such as paid time off, employer’s pension contribution, and sick pay.
• Many skilled laborers will not accept a position without at least a simple benefits package. It is standard practice in U.S. culture to offer a basic amount of non-monetary benefits to full-time, permanent employees.

Key Term

non-monetary

Payment in the form of benefits, flex-time, time off, free or discounted parking, gym membership discounts, retirement plans, mentoring, tuition assistance, child care, or other non-cash option.

Benefits as Incentives

Non-monetary benefits are essential to attracting a productive workforce. Many skilled laborers will not accept a position that does not offer at least a simple benefits package. It is standard practice in U.S. culture to offer basic non-monetary benefits to full-time, permanent employees. Part-time and contract workers are not always offered these benefits, partly as a result of the high cost to businesses.

Offering benefits above the expected amount can be an incentive program and used to recruit highly skilled employees to an organization. For example, skilled employees may be more likely to join an organization that offers free onsite parking, retirement benefits, and extra paid time off than an organization that does not offer these fringe benefits. Companies also use non-monetary benefits to increase and maintain employee morale and satisfaction.

Benefits can be a key element in addressing the lowest level of Maslow’s needs hierarchy. If employees do not feel that an organization is treating them fairly with respect to basic needs (food, money for retirement, etc.), then they are likely to be less satisfied with their jobs, perform at a lower level, or leave. Those who do not feel their basic needs are met may also fail to reach higher levels of motivation.

Benefit Types

Employers have several options with respect to non-monetary compensation. These can include benefits (including medical or other insurance), flex-time, time off, free or discounted parking, gym membership discounts, retirement matching, mentoring programs, tuition assistance, and childcare. All of these benefits communicate to employees that their work is valued and promote a positive work-life balance. The idea behind benefits is to build a community and support system, which enables employees to focus on work rather than worry about life.

The largest category of non-monetary compensation includes benefits. Employee benefits can include paid time off, insurance (life, medical/dental, or disability coverage), and pension plans.

Legalities and Benefits

Many countries dictate different minimum benefits, such as paid time off, employer’s pension contribution, and sick pay. In the U.S., benefits may include a health plan to which the company contributes and that sometimes includes vision and dental coverage, along with basic health coverage. Some governments mandate benefits such as retirement savings matching, but organizations can offer additional retirement benefits through a matching plan.

Health insurance distribution (under 65 years)

Health insurance includes employer-sponsored health insurance, military health care, Medicaid, Medicare, and non-group health insurance. The largest group of insured Americans consists of middle- and upper-class employees receiving health insurance through employers. 16% of Americans remain uninsured.

5.10.3: Financial Rewards for Managers

Financial rewards are often used as a tool to motivate managers to perform better.

Learning Objective

Identify the relationship between management and pay-for-performance financial incentives.

Key Points

• Incentive programs, also known as “pay for performance,” provide employees, consumers, or providers with financial rewards as a way of motivating better performance.
• The view that managers are most responsible for strategic planning and decision making is part of the rationale for financial incentive programs. In this view, financial rewards such as bonuses are a performance-based incentive to improve productivity.
• One risk of incentive schemes is ethical hazard. Offering incentives to hit specific targets can result in the target becoming the primary goal, rather than the improvement of the company’s performance as a whole.
• The recession of 2008–2010 made it more difficult for businesses to offer managers monetary rewards.

Key Term

incentive

Reward used to motivate employees toward better performance.

Incentive programs, also known as “pay for performance,” provide employees, consumers, or providers with financial rewards as a way of motivating better performance. Various behavioral factors might be considered prior to establishing an incentive program, including the target audience’s motivation, skills, recognition, understanding of the goals, and ability to measure progress. The interest of participants plays a vital role in determining an incentive program, as the goal is to motivate their behavior.

Pay-for-Performance Jobs

Pay-for-performance programs are quite common in a number of industries, most notably sales. A sales role often features a contractual agreement that stipulates a certain percentage of a given representative’s sales contribute to that sales rep’s own salary. This motivates sales professionals to pursue higher success rates, as their own income will directly correlate with their efficacy.

Other types of pay-for-performance jobs are found in the manufacturing, restaurant, and financial industries. The basic premise is simple: the more sales or profits generated by the individual, the larger the share of the organization’s profit that individual will receive in return.

Incentive Programs

Managerial roles can function similarly to these pay-for-performance jobs, where the success of the company (or department) will directly affect the salary of the manager. Managers are often motivated by financial rewards. Like other pay-for-performance programs, the incentive programs for managers are designed to increase their performance as well as the overall performance of the company. These and other incentive programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness, increase retention, and drive performance.

The financial rewards of upper management are often the highest in the organization. Such financial incentive programs are based on the understanding that the top managers within a business are the most responsible for strategic planning and decision making. In this view, financial rewards like bonuses serve as an incentive for senior management to improve performance.

CEO pay growth compared to employee salaries, U.S. gross domestic product, and overall U.S. corporate profits

CEOs, as primary examples of upper managerial salary, receive high salaries in comparison to other gross income indicators. This contrast may be a result of the differing pay structure often associated with upper management.

A risk of incentive schemes is ethical hazards. Offering incentives to hit specific targets means the targets themselves can become the primary goal, rather than the improvement of the company’s performance as a whole. This mindset may cause a reduction in overall performance—even as the rate of hitting targets climbs. In the wake of the global recession of 2008–2010, financial incentive schemes received greater criticism and oversight, partly for this very reason.

4.3: Adapting and Innovating

4.3.1: Benefits of Innovation

Learning Objective

Identify the organizational benefits derived through enabling internal innovation

Key Points

• Innovation is the development of customer value through solutions that meet new needs, unarticulated needs, or existing market needs in unique ways.
• Innovative employees increase productivity by creating and executing new processes which in turn may increase competitive advantage and provide meaningful differentiation.
• Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.
• Clarity about and understanding of roles, increased responsibilities, strategic partnerships, senior management support, organizational restructuring, and investment in human resources can all enrich organizational culture and innovation.

Key Terms

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

productivity

The rate at which goods or services are produced by a standard population of workers.

efficiency

The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.

Defining Innovation

Innovation is the development of customer value through solutions that meet new, undefined, or existing market needs in unique ways. Solutions may include new or more effective products, processes, services, technologies, or ideas that are more readily available to markets, governments, and society.

Innovation is easily confused with words like invention or improvement. They are, however, different terms. Innovation refers to coming up with a better idea or method, or integrating a new approach within a contextual model, while invention is more statically about creating something new. Innovation refers to to finding new ways to do things, while improvement is about doing the same thing more effectively.

Organizational Benefits of Innovation

From an organizational perspective, managers encourage innovation because of the value it can capture. Innovative employees increase productivity through by creating and executing new processes, which in turn may increase competitive advantage and provide meaningful differentiation. Innovative organizations are inherently more adaptable to the external environment; this allows them to react faster and more effectively to avoid risk and capture opportunities.

From a managerial perspective, innovative employees tend to be more motivated and involved in the organization. Empowering employees to innovate and improve their work processes provides a sense of autonomy that boosts job satisfaction. From a broader perspective, empowering employees to engage in broader organization-wide innovation creates a strong sense of teamwork and community and ensures that employees are actively aware of and invested in organizational objectives and strategy. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.

Managers can accomplish this through providing top-down support to employees, providing clear roles and responsibilities while allowing individuals the freedom to pursue these as they see fit. Supporting the HR and IT departments so that they can provide training and tools for higher employee efficiency can contribute substantially to a culture of internal innovation. This requires open-minded and motivational leaders in managerial positions who are capable of steering employee efforts without diminishing employee creativity.

4.3.2: Characteristics of Innovative Organizations

Learning Objective

Outline the critical success factors and characteristics of an adaptable and innovative organizational culture

Key Points

• Being receptive to new business ideas means being receptive to the idea that mistakes are a necessary part of the process.
• Everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.
• It is likely that some successful innovations will result from chance discoveries.
• Managers must understand that employees too mired in routine work and too criticized for trying new methods will inherently fail to create innovations that may drive organizational growth.

Key Term

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

Many business experts argue that companies that make a substantial commitment to innovation and entrench it deeply throughout their culture will perform exceptionally well. But how can innovation be facilitated within the organizational framework? The following are some examples of characteristics that lead to successful innovation.

Accept Mistakes as Part of the Process

A Minnesota Mining & Manufacturing researcher was looking for ways to improve the adhesives used in 3M tapes that he discovered an adhesive that formed itself into tiny spheres. At first, it seemed as though his work was a failure. However, the new adhesive was later used on Post-it notes—a great innovation and business success for the company. Being receptive to new business ideas means being receptive to mistakes as a necessary, and sometimes even crucial, part of the process.

Keep an Open Mind and Think Laterally

Possibilities for innovation exist everywhere. To realize them, everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.

The classic example of a company that completely transformed itself as a result of lateral thinking is the Finnish company Nokia, whose original core business was wood pulp and logging. When the collapse of communism opened the Russian market to the west, Nokia’s core business was seriously threatened by cheaper imports from Russia’s seemingly limitless forests. In the deep recession of the early 1990s, Nokia’s management concluded that the only real competitive advantage they retained was a very efficient communications system developed in the 1970s that helped them keep in touch with their remote logging operations. That single realization transformed the company into one of the world’s most successful vendors of communications equipment.

Nokia cell phone

Nokia successfully transformed itself from a logging company to an electronic-communications company through innovation.

Managerial Implications

As is usually the case, these principles are easier said than done. Managers must carefully consider what type of work environment they project for their subordinates. Managers must understand that employees too mired in routine work and who are criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. There is therefore a balancing act between enabling employees to try new things and take risks vs. ensuring that tasks are completed on time with reasonable success.

4.3.3: Types of Innovation

Learning Objective

Outline a categorical overview of the potential ways in which innovation can be pursued and identified.

Key Points

• The entrepreneurial method of innovation is one in which change is initiated by an individual’s actions and drive to create a business venture of adaptation.
• Technology-based functional innovation occurs when the development of new technology drives innovation.
• The strategic-reflexive mode describes innovation that springs from individuals’ interactions with their organization’s common values and goals.
• Other types of innovation include: incremental, architectural, generational, manufacturing, financial, and cumulative.

Key Term

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

In business and economics, innovation is the catalyst to growth. Fuglsang and Sundbo (2005) suggest that there are three modes of innovation. The first is an entrepreneurial value-based method where change is initiated by an individual’s actions. The second is a technology-based functional mode in which the development of new technology drives innovation. The third is a strategic-reflexive mode in which innovation results from individual’s interactions with their organization’s set of common values and goals. The following graphic provides an example of the innovation process.

Innovation process

Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

Entrepreneurial Innovation

The innovation dimension of entrepreneurship refers to the pursuit of creative or novel solutions to challenges confronting a firm. These challenges can include developing new products and services or new administrative techniques and technologies for performing organizational functions (e.g., production, marketing, and sales and distribution).

Technological Innovation

Technological innovation takes place when companies try to gain a competitive advantage either by reducing costs or by introducing a new technology. Technological innovation has been a hot topic in recent years, particularly when coupled with the concept of disruptive innovation. Disruptive innovation is usually a technological advancement that renders previous products/services (or even entire industries) irrelevant. For example, the smartphone disrupted landlines, Netflix made Blockbuster obsolete, and mp3s have marginalized CD players.

Strategic Innovation

The strategic-reflexive mode of innovation is the most effective mode for change and innovation. While technological innovation is clear and easy to define, strategic innovation is inherently intangible and organizational in nature. Strategic innovation pertains to processes: how things are done as opposed to what the end product is. Strategic changes can be disruptive but are more often incremental. Incremental innovation is the idea that small changes, when effected in large volume, can rapidly transform the broader organization.

Walmart’s “Hub and Spoke” distribution model is a classic example of strategic innovation. Walmart succeeded thanks to process efficiency enabled via innovative operational paradigms and distribution strategies. By utilizing a maximum efficiency warehousing and distribution model, refined over and over again incrementally for improvement, Walmart has sustained a competitive advantage for decades.

Other Applications of Innovation

• Generational innovation involves changes in subsystems linked together with existing linking mechanisms.
• Architectural innovation involves changes in linkages between existing subsystems.
• Incremental innovations improve price/performance advancement at a rate consistent with the existing technical trajectory. Radical innovations advance the price/performance frontier by much more than the existing rate of progress.
• Manufacturing process innovation refers to all the activities required to invent and implement a new manufacturing process.
• Cumulative innovation is any instance of something new being created from more than one source. Remixing music is a direct example of cumulative innovation.
• Financial innovation has brought many new financial instruments with pay-offs or values depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and equity swaps.

4.3.4: Speed of Innovation

Learning Objective

Recognize the challenge inherent in adopting new ideas and the subsequent considerations pertaining to the speed of pursuing them.

Key Points

• Speed of innovation can pose a major challenge for organizations responding to external change.
• Profits depend on speed of innovation and the ability to attract customers. Big corporations used to dominate, but now industry leaders are often small, highly flexible groups that come up with great ideas, build trustworthy branding for themselves and their products, and market them effectively.
• A first-mover in a given innovation captures the obvious advantage of tapping into a new market before the competition. This can also allow the first-mover to capture the new technology for its own brand.
• First-movers encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Late-comers to the game can simply observe the success or failure of other competitors and make a more informed (and less risky) decision.

Key Terms

Cannibalization

The reduction of sales or market share for one of your own products by introducing another.

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

The best ideas should implemented as quickly as possible—not just by the idea generator but also by others who have a different viewpoint. It is imperative that the idea is honed and refined while it is still fresh. For example, an idea for a new product might start out as a crude model built from polystyrene, foam, or cardboard that will evolve quickly into a more professional prototype.

Product Innovation Approach

Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

Robert Reich observes that profits in the old economy came from economies of scale, i.e., long runs of almost identical products. Thus we had factories, assembly lines, and industries. Today, profits come from speed of innovation and the ability to attract and keep customers. Therefore, while the big winners in the old economy were big corporations, today’s big winners are often small, highly flexible groups that devise great ideas, develop trustworthy branding for themselves and their products, and market these effectively. The winning competitors are those who are first at providing lower prices and higher value through intermediaries of trustworthy brands. To keep the lead, however, these companies have to keep innovating lest they fall behind the competition.

The Benefit of Moving First

Speed of innovation poses a major challenge for organizations responding to external change. A high rate of change can be seen in the shortening of product life cycles, increased technological change, increased speed of innovation, and increased speed of diffusion of innovations. These are key challenges for organizations, as the profit generation of new ideas must fit into a slimmer chronological window—thus underlining the great value of being a first-mover.

A first-mover in a given innovation captures the obvious advantage of tapping into a new market before its competitors. This also sometimes allows the first-mover to identify its brand with the new technology (i.e., saying “Google it” as shorthand for online search or calling any and all mp3 players an iPod). These branding hurdles must be tackled by any competitor following in the footsteps of the first-mover.

However, speed is not everything. First-movers encounter serious disadvantages, the most notable of which are freeloaders. First-movers also encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make more informed (and less risky) decisions about entering the market segment. Similarly, first movers must carefully consider cannibalization—where their new innovative products steal sales from their older products still on store shelves. Speedy innovation and moving first requires great foresight, planning, and managerial skill to execute effectively to minimize risks.

4.3.5: Sustainability Innovation

Learning Objective

Describe how organizational culture adds value by generating an innovative approach to sustainability issues

Key Points

• Sustainopreneurship describes using creative organizing to solve problems related to sustainability to in turn create social and environmental sustainability as a strategic objective and purpose.
• Solving sustainability-related problems is the be-all and end-all of sustainability entrepreneurship.
• Passively heated houses, solar cells, organic food, fair trade products, hybrid cars, and car sharing are all examples of sustainability innovations.

Key Terms

sustainability

Configuring human activity so that societies are able to meet current needs while preserving biodiversity and natural ecosystems for future generations.

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or nourishment), which is different than durability (the capacity to endure through resistance to change). Innovation is the creation of new value through the use of solutions that meet new, previously unknown, or existing needs in new ways. Innovation should be pursued with sustainability in mind as a critical strategic objective, as the integration of new business ideas with the broader community and environment is central to long-term success.

Sustainability Entrepreneurship

“Sustainopreneurship” describes using creative business organizing to solve problems related to sustainability to create social and environmental sustainability as a strategic objective and purpose, while at the same time respecting the boundaries set in order to maintain the life support systems of the process. In other words, it is “business with a cause,” where the world’s problems are turned into business opportunities for deploying sustainability innovations. Sustainopreneurship is entrepreneurship and innovation for sustainability.

This definition is highlighted by three distinguishing dimensions. The first is oriented towards “why” – a company’s purpose and motive in adopting sustainable entrepreneurship. The second and third reflect two dimensions of “how” the process is carried out.

• Entrepreneurship consciously sets out to find or create innovations to solve sustainability-related problems.
• Entrepreneurship moves solutions to market through creative organizing.
• Entrepreneurship adds sustainability value while respecting life support systems.

Solving sustainability-related problems from the organizational frame is the be-all and end-all of sustainability entrepreneurship. This means that all three dimensions are simultaneously present in the process.

An example to provide context: Interface Global produces modular carpeting. Sustainability is the core operating mission and vision of the broader organization. Through greening their supply chain, minimizing water use, cutting electric costs, reducing fuel costs through better distribution, and a number of other innovative process improvements, Interface Global produces high quality carpets at a lower cost and smaller environmental footprint. The company created a sustainable business strategy through innovative thinking.

4.3.6: Social Innovation

Learning Objective

Define social innovation and the potential positive outcomes of employing it within an organizational culture

Key Points

• Social innovation can refer to social processes of innovation, such as open source methods and techniques.
• Social innovation can also refer to innovations that have a social purpose, like microcredit or distance learning, and can be related to social entrepreneurship.
• Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them.

Key Terms

social capital

The value created by interpersonal relationships with expected returns in the marketplace.

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

social

Of or relating to society.

Example

• Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, which pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America.

Social innovation refers to new strategies, concepts, ideas, and organizations that extend and strengthen civil society or meet societal needs of all kinds—from working conditions and education to community development and health.

Organizations, both for for-profit and nonprofit, benefit enormously from incorporating social innovation into their operations. Giving back to to the community and empowering the individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows wealth for potential customers, builds a strong brand, and underlines social responsibility and high ethical standards as central to the organizational character.

Example of a social innovation program

A health camp conducted for villagers as part of the Social Innovation Program at SOIL, in partnership with the Max India Foundation.

The term “social innovation” has overlapping meanings. Sometimes it refers to social processes of innovation like open-source methods and techniques. Other times it refers to innovations that have a social purpose, like microcredit or distance learning. The concept can also be related to social entrepreneurship (entrepreneurship is not necessarily innovative, but it can be a means of innovation). On occasion, it also overlaps with innovation in public policy and governance. Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them. Research has focused on the types of platforms needed to facilitate such cross-sector collaborative social innovation.

The Process of Social Innovation

Social innovation is often an effort of mental creativity that involves fluency and flexibility across a wide range of disciplines. The act of social innovation in a sector encompasses diverse disciplines within society. The social innovation theory of “connected difference” emphasizes three key dimensions of social innovation:

1. First, it usually produces new combinations or hybrids of existing elements, rather than wholly new.
2. Second, it cuts across organizational or disciplinary boundaries.
3. Last, it creates compelling new relationships between previously separate individuals and groups. Social innovation is currently gaining visibility within academia.

Examples of Social Innovation

There are many examples of social innovation making a meaningful difference across the globe—from huge organizations like the Bill and Melinda Gates Foundation funding multinational initiatives to small groups of community leaders collecting money to help buy new high school textbooks. Some specific examples include:

• The University of Chicago sought to develop social innovations that would address and ameliorate the immense problems caused by poverty in a largely immigrant city around the turn of the 20th century.
• Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, who pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America.
• Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing many city services.

4.3.7: Commercializing Innovative Products

Learning Objective

Examine the three key aspects of the commercialization process and outline the four key questions that must be answered prior to the commercialization of a new and innovative product

Key Points

• The actual launch of a new product is the final stage of new product development. This is when the most money is spent for advertising, sales promotion, and other marketing efforts.
• It is important to emphasize that the commercialization strategy and feasibility should have been considered and approved long before the actual execution of commercialization – as the time, efforts and development costs have already largely been incurred.
• Organizations must consider who they are selling to and where they are selling when determining the most effective process for commercialization.
• The primary target consumer group includes innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.

Key Terms

early adopter

A person who begins using a product or service at or around the time it becomes available.

commercialization

The act of positioning a product to make a profit.

Commercialization is often confused with sales, marketing, or business development. In the context of innovation, commercialization is the process of introducing a new product or service to the public market. Innovations are defined as new products or services that improve upon their predecessors, and the process of integrating them into the current market is a critical component of successfully bringing them to market. Great innovations are not always brought to market due to a lack of feasibility or poor planning. Long-term planning is crucial in the commercialization process because this is when the most money will be spent—on advertising, sales promotions, and other marketing efforts after the launch of a new product.

Product innovation approach

Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

The Commercialization Process

The commercialization process has three key aspects:

• Carefully select, based upon comprehensive market research, which products can be sustained financially in which markets for long-term success.
• Planning for various phases and/or stages in the commercialization process is key. Consider geographic distribution, different demographics, etc.
• Finally, identify and involve key stakeholders early, including consumers.

Key Strategic Questions

When bringing a product to market, a number of key strategic questions need to be answered satisfactorily long before substantial costs are incurred for commercialization. These questions are simple to ask but complex to answer, and business analysts and market researchers will spend a considerable amount of time approaching them via research models and careful financial consideration.

• When: The company has to time introducing the product perfectly. If there is a risk of cannibalizing the sales of the company’s other products, if the product could benefit from further development, or if the economy is forecasted to improve in the near future, the product’s launch should be delayed. Similarly, many items are seasonal (e.g., fashion) and so should be timed appropriately to maximize revenue.
• Where: The company has to decide where to launch its products. This can be in a single location, in one or several larger regions, or in a national or international market. This decision will be strongly influenced by the company’s resources; larger companies can reach broader geographic audiences. It is important to keep in mind where the early adopters will be and where competitive gaps may exist. In the global marketplace, this question is increasingly complex.
• To whom: The primary target consumer group will have been identified earlier through research and test marketing. This primary consumer group will include innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.
• How: The company has to decide on an action plan for introducing the product by implementing these decisions. It has to develop a viable marketing mix and create a respective marketing budget.

While these questions are key considerations in the commercialization process, remember that they should have been answered long before the commercialization stage. After all, if the need is not sufficiently widespread or the market not sufficiently developed, there is little reason to have pursued a given innovation in the first place.

4.3.8: Fostering Innovation

Learning Objective

Outline how to encourage creativity, participation and innovation through effective management

Key Points

• People perform best when they are driven by inspiration and are encouraged to push their boundaries and think outside the box.
• Teamwork enhances people’s strengths and lessens their individual weaknesses.
• One of the most powerful tools for promoting employee creativity and innovation is recognition.
• Ultimately, in developing a culture of innovation you want employees to feel comfortable experimenting and offering suggestions without fear of criticism or punishment for mistakes.

Key Terms

creativity

The quality or ability to create or invent something.

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

Strategies capable of producing innovation require resources and energy; it is therefore necessary to discuss in your business plan the organizational structures and practices you will put in place to encourage and support innovation. Amabile (1998) points to six general categories of effective management practices that create a learning culture within an organization:

1. Providing employees with a challenge
2. Providing freedom to innovate
3. Providing the resources needed to create new ideas/products
4. Providing diversity of perspectives and backgrounds within groups
5. Providing supervisor encouragement
6. Providing organizational support

Innovation

Cartoon shows the challenge of translating innovation (designers) to economic success.

Create a Culture of Innovation

You will likely find that you need to generate hundreds of ideas to find ten good ones that will create value for your organization. This is part of the creative brainstorming process, and it should be encouraged. It should be the responsibility of every individual in the organization to come up with ideas, not just the founder or key staff. Here are some suggestions to encourage the flow of ideas.

Encourage Creativity

Encouraging creativity helps keep staff happy. If they think something is important and has the potential to create a financial payoff for the company, let them follow their idea. People perform best when they are driven by inspiration and encouraged to push their boundaries and think outside the box. But employees cannot do this when they are being micromanaged. Employees need to feel independent enough to own their innovative thinking and to pursue the ideas they are passionate about. In fact, if management effectively fosters a creative and open environment, innovation will happen naturally.

Encourage Participation

Teamwork enhances people’s strengths and mitigates their individual weaknesses. Effective teamwork also promotes the awareness that it is in everyone’s best interests to keep the business growing and improving. Creating a participation-based environment means creating smart teams, encouraging open dialogue, and minimizing authority. Criticism is productive and should be encouraged, but it must be used constructively.

Provide Recognition and Rewards

One of the most powerful tools for promoting employee creativity and innovation is recognition. People want to be recognized and rewarded for their ideas and initiatives, and it is a practice that can have tremendous payoff for the organization. Sometimes the recognition required may be as simple as mentioning a person’s effort in a newsletter. If a staff member comes up with a really creative idea, mention them in the company newsletter or on the news board even if their idea can’t be implemented immediately. Make it clear that compensation and promotions are tied to innovative thinking.

Enable Employee Innovation

You may have an innovative culture in your organization, but you also need to familiarize staff with some of the hallmarks of continuing innovation. For example, you could educate employees at regular training sessions on topics such as creativity, entrepreneurship, and teamwork. Each session might conclude with the assignment of an exercise to be performed over the next few working weeks that will consolidate lessons learned. Your aim here is to give employees a taste of innovation so they will embrace the process.

Other Motivators

• Profit-sharing and bonuses
• Days off
• Extra vacation time

Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. Often great ideas that can lead to innovation will happen outside the places where we expect them to happen. If it’s hard to get staff together for common informal breaks, consider taking them out for an informal meal where you can encourage creative discussion about work. Also be sure to encourage laughter at meetings because laughter is an effective measure of how comfortable people feel about expressing themselves.

4.4: Technology and Innovation

4.4.1: Technology as a Driver and Enabler of Innovation

Technology is a powerful driver of both the evolution and proliferation of innovation.

Learning Objective

Examine the role of technology as a driver of competitive advantage and innovation in the business framework

Key Points

• Innovation is a primary source of competitive advantage for companies in essentially all industries and environments and drives efficiency, productivity, and differentiation to fill a higher variety of needs.
• Technology builds upon itself, enabling innovative approaches within the evolution of technology.
• Technological hubs such as California’s Silicon Valley provide powerful resources that entrepreneurs and businesses can leverage in pursuing innovation.
• Technological advances, particularly in communication and transportation, further innovation.
• India, China, and the United States are all strong representations of how embracing technology leads to innovation, which in turn leads to economic growth.

Key Terms

Scalable

Able to change in size or to scale up.

innovation

The introduction of something new; the development of an original idea.

proliferate

To increase in number or spread rapidly.

Innovation is a primary source of competitive advantage for companies in essentially all industries and environments, and drives forward efficiency, higher productivity, and differentiation to fill a wide variety of needs. One particular perspective on economics isolates innovation as a core driving force, alongside knowledge, technology, and entrepreneurship. This theory of innovation economics notes that the neoclassical approach (monetary accumulation driving growth) overlooks the critical aspect of the appropriate knowledge and technological capabilities.

Scaling Technology

Technology in particular is a powerful driving force in innovative capacity, particularly as it pertains to both the evolution of innovations and the way they proliferate. Technology is innately scalable, demonstrating a consistent trend toward new innovations as a result of improving upon current ones. Product life cycles shows how economic returns go through a steep exponential growth phase and an eventual evening out, which motivates businesses to leverage technology to produce new innovations.

Technology Hubs

Technological Innovation Chart

This chart demonstrates the pattern of innovation over time. Note the overlapping trajectories of technologies: one product may dominate the market and grow at a high rate; the next (“emerging”) product may start low while the other product is dominant but in turn grow to dominate the market even more thoroughly than the first, as technology and production are refined and improved.

The proliferation of innovation pertains to two important factors of technology driving innovation: the creation of geographic hubs for technology and empowerment of knowledge exchange through communication and transportation. Places like California’s Silicon Valleya and Baden-Wurttenberg, Germany are strong examples of the value of technological hubs. The close proximity of various resources and collaborators in each hub stimulates a higher degree of innovative capacity.

Communication and cumulative knowledge in these technology hubs allows for these innovations to spread via technology to be implemented across the globe with relative immediacy. This spread of ideas can be built upon quickly and universally, creating the ability for innovation to be further expanded upon by different parties across the globe. Collaboration on a global scale as a result of technological progress has allowed for exponential levels of innovation.

Correlations Between Technology, Innovation, and Growth

Empirical evidence generates a positive correlation between technological innovation and economic performance. Between 1981 and 2004, India and China, developed a National Innovation System designed to invest heavily in R&D with a particular focus on patents and high-tech and service exports. During this timeframe, both countries experienced extremely high levels of GDP growth by linking the science sector with the business sector, importing technology, and creating incentives for innovation.

Additionally, the Council of Foreign Relations asserted that the U.S.’ s large share of the global market in the 1970s was likely a result of its aggressive investment in new technologies. These technological innovations generated are hypothesized to be a central driving force in the steady economic expansion of the U.S., allowing it to maintain it’s place as the world’s largest economy.

4.4.2: The Technology Life Cycle

The technology life cycle describes the costs and profits of a product from technological development to market maturity to decline.

Learning Objective

Categorize the four distinct stages in the technology life cycle and apply the five demographic consumer groups in the context of these stages

Key Points

• The technology life cycle seeks to predict the adoption, acceptance, and eventual decline of new technological innovations.
• Understanding and effectively estimating technology life cycle allows for a more accurate reading of whether and when research and development costs will be offset by profits.
• The technology life cycle has four distinct stages: research and development, ascent, maturity, and decline.
• The adoption of these technologies also has a life cycle with five chronological demographics: innovators, early adopters, early majority, late majority, and laggards.
• By leveraging these models, businesses and institutions can exercise some foresight in ascertaining return on investment as their technologies mature.

Key Terms

demographic

A characteristic used to identify people within a statistical framework.

competitive advantage

Something that places a company or a person above the competition.

Foresight

The ability to accurately estimate future outcomes.

The technology life cycle (TLC) describes the costs and profits of a product from technological development phase to market maturity to eventual decline. Research and development (R&D) costs must be offset by profits once a product comes to market. Varying product lifespans mean that businesses must understand and accurately project returns on their R&D investments based on potential product longevity in the market.

Due to rapidly increasing rates of innovation, products such as electronics and pharmaceuticals in particular are vulnerable to shorter life cycles (when considered against such benchmarks as steel or paper). Thus TLC is focused primarily on the time and cost of development as it relates to the projected profits. TLC can be described as having four distinct stages:

Technology life cycle chart

This chart illustrates the stages in the technological life cycle.

• Research and Development – During this stage, risks are taken to invest in technological innovations. By strategically directing R&D towards the most promising projects, companies and research institutions slowly work their way toward beta versions of new technologies.
• Ascent Phase – This phase covers the timeframe from product invention to the point at which out-of-pocket costs are fully recovered. At this junction the goal is to see to the rapid growth and distribution of the invention and leverage the competitive advantage of having the newest and most effective product.
• Maturity Stage – As the new innovation becomes accepted by the general population and competitors enter the market, supply begins to outstrip demand. During this stage, returns begin to slow as the concept becomes normalized.
• Decline (or Decay) Phase – The final phase is when the utility and potential value to be captured in producing and selling the product begins dipping. This decline eventually reaches the point of a zero-sum game, where margins are no longer procured.

Product development and capitalizing on the new invention covers the business side of these R&D investments in technology. The other important consideration is the differentiation in consumer adoption of new technological innovations. These have also been distributed into phases which effectively summarize the demographic groups presented during each stage of TLC:

Technology adoption life cycle

This adoption chart highlights the way in which consumers embrace new products and services.

• Innovators – These are risk-oriented, leading-edge minded individuals who are extremely interested in technological developments (often within a particular industry). Innovators are a fractional segment of the overall consumer population.
• Early Adopters – A larger but still relatively small demographic, these individuals are generally risk-oriented and highly adaptable to new technology. Early adopters follow the innovators in embracing new products, and tend to be young and well-educated.
• Early Majority – Much larger and more careful than the previous two groups, the early majority are open to new ideas but generally wait to see how they are received before investing.
• Late Majority – Slightly conservative and risk-averse, the late majority is a large group of potential customers who need convincing before investing in something new.
• Laggards – Extremely frugal, conservative, and often technology-averse, laggards are a small population of usually older and uneducated individuals who avoid risks and only invest in new ideas once they are extremely well-established.

Taking these two models into consideration, a business unit with a new product or service must consider the scale of investment in R&D, the projected life cycle the technology will likely maintain, and the way in which customers will adopt this product. By leveraging these models, businesses and institutions can exercise some foresight in ascertaining the returns on investment as their technologies mature.

4.4.3: Assessing an Organization’s Technological Needs

Assessing the internal technological assets and future needs of an organization prepares management for successful technology integration.

Learning Objective

Apply the four strategies of information gathering and introspection that allow for effective assessment of technology needs in an organization

Key Points

• Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity.
• Companies looking to stay ahead of the competition should gather data internally and externally to facilitate forecasting and the crafting of implementation technology strategies.
• In addition to noting new technological advances, the assessment process is also heavily internal and necessitates that companies isolate their technological strengths and weaknesses.

Key Terms

productivity

The rate at which products and services are produced relative to a particular workforce.

forecasting

To estimate how a condition will be in the future.

introspection

Self-assessment, or an individual or company looking inward to measure certain strengths and weaknesses.

Remaining competitive and remaining technologically vigilant are virtually synonymous at this point in business development. Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity. There are various concepts that are typical of this managerial technology assessment strategy:

• Technology Strategy – identifying the logic or role of technology within the company.
• Technology Forecasting – identifying applicable technologies for the company, potentially through scouting.
• Technology Roadmapping – ascertaining the trajectories of technological advancement and applying business or market needs to this assessment.
• Technology Portfolios – accumulating all technologies relevant to products or operations to determine which are ideal for internal implementation.

All four of these strategies revolve both around information gathering and introspection into business operations and processes. All four can be improved upon through technological advances. Integrated planning in pursuit of optimization through new technologies keeps efficiency at or above competitive levels. This internal technology assessment also includes noting when and whether it is necessary to construct employee training programs for new technology.

Technology and Market Share

As successive groups of consumers adopt new technology a bell curve emerges – this is referred to as the innovation adoption life cycle (the blue bell curve on the above graphic). The percentages on the x-axis indicate the size of the populations (relative to the entire consumer group for a given good) in each segment. By keeping pace with technological innovation, and offering products early enough to capture the majority of the market, businesses can gain competitive advantage. If a business is too late to enter a newly emerged technological market, it can be quite difficult to attain a high percentage of the market share, as represented on the y-axis (which has often been claimed by other incumbents, as the intersecting yellow line on the graph indicates).

4.4.4: Understanding Current Trends in Technology

Understanding current technologies and trends allows a company to align and synchronize operations to optimize returns on innovation.

Learning Objective

Recognize the importance of keeping pace with current technologies and trends to retain competitive capacity and identify the four specific dimensions of business technology management (BTM)

Key Points

• Business technology management (BTM) provides a bridge between previously established tools and standards within a business environment and the newer, more operationally efficient tools and standards technological progress provides.
• Aligning technologies with current business initiatives and strategies is the most basic way for a business to remain competitive in the current technological climate.
• Companies that can improve on alignment to synchronize the technological landscape internally (often through researching and developing innovations in-house) can achieve foresight and long-term benefits through forecasting future technological necessities.
• BTM has four dimensions: process, organization, information, and technology.
• Effectively employing these four dimensions of BTM provides companies the potential to project technological trends, and synchronize them with their strategies.

Key Terms

SBUs

Strategic Business Units; separate elements of a company, organized by similarity of processes and objectives.

Alignment

The process of adjusting a mechanism (or business) so that its parts act in concert.

Synchronization

The process of aligning all inputs to optimize output.

Businesses are tasked with the ongoing responsibility of keeping up with evolving technology trends to stay competitive. Trends in technology extend out like the branches of a tree: each new innovation creates the possibility for multiple new innovations. The field of business technology management (BTM) arose to provide businesses with the best approaches for assessing and implementing these varying technological advances into their strategies.

BTM

Alignment

BTM provides a bridge between previously established tools and standards within a business environment and newer, more operationally efficient tools and standards in technology. BTM does this by creating a set of principles and guidelines for companies to follow as they pursue alignment. Alignment, in this respect, can be defined as how an institution’s technology supports and enables technology while avoiding constraints in direct relation to company strategies, objectives, and competition. When companies accomplish this in any given technological environment, they have attained BTM maturity relative to that time frame and industry.

Synchronization

Alignment is only the first step: the next step is synchronization. Like alignment, synchronization enables execution, but it also helps companies develop the capacity to anticipate and adapt future business models and strategies. This is generally accomplished by investing in research and development and staying ahead of the standard technologies by anticipating or even innovating past them. This business technology leadership role is long-term oriented and very effective in maintaining competitive advantages in any given industry, but it is particularly important for industries in the tech sectors.

Cycle of Research and Development

The Cycle of Research and Development moves through theorizing, to hypothesizing, to design, to implementation, to study, and back to theorizing to begin the cycle again.

Companies use four specific dimensions of BTM to achieve this understanding of current technologies and trends:

• Process – Companies must execute a set of fluid and repeatable processes that can be consistently scaled up through evaluation.
• Organization – Utilizing an organized business structure or corporate framework, often through strategic business units (SBUs), provides substantial value in centralizing processes and assessing needs.
• Information – Scouting and assessing the current technological environment through extensive research teams is necessary to make the appropriate decisions (see “Sourcing Technology” and “Assessing Needs in Technology” within this Boundless segment).
• Technology – Finally, improving upon these processes within SBUs via leveraging the appropriate data and information will drive strategic acquisition of beneficial technological improvements based upon current trends.

Taken together, these four dimensions applied to alignment and synchronization of new technology can help businesses keep up with or ever stay ahead of current technologies and trends. Companies can benefit from the intrinsic opportunities technological progress provides while offsetting the intrinsic risks of external technological development.

4.4.5: Sourcing Technology

Technology sourcing involves isolating and implementing new innovations within an existing business framework.

Learning Objective

Illustrate the varying cost structures, licensing, and scouting procedures involved with technology sourcing

Key Points

• Sourcing new technology involves the scouting and researching of new technological potential and the eventual transfer of these technologies to a company.
• Technology scouting is based around identifying new technologies, organizing and channeling data on these technologies, and assessing the ease and value of implementing them.
• Companies capitalize on the successful scouting of a new technology by sourcing it from the appropriate party for their own use.
• Tech transfer drawbacks primarily involve the cost of licensing patents and training employees to effectively use the new technology.
• Some organizations, such as Sourceforge, Wikipedia, and Boundless, provide knowledge and technology for free in an open source strategy.

Key Terms

patent

A legal right to a particular innovation, protecting it from being copied or employed by another without consent or license.

Sourcing

The supply of resources needed by a particular company or individual.

Scouting

The act of seeking or searching.

Technology Sourcing Strategies

Technology sourcing, or the pursuit of implementing new technologies within a businesses strategic framework, involves isolating and applying new technologies to current models. Technology can be developed internally or isolated through technology scouting and then implemented through technology transfer. In deciding which approach is optimal for them, organizations must consider such factors as the advantage of being first to market, research and developments costs and capabilities, and market research and data gathering costs. Therefore the strategies behind sourcing technology can be complex, varying by industry, company size, economic strength, and the availability of easily implemented technology.

Technology Scouting

Technology scouting is essentially forecasting technological developments through information gathering. Technology scouts can either be internal employees or external consultants specifically designated to the task of researching developments in a particular technological field. This can be loosely referred to as a three-step process:

1. Identify emerging technologies.
2. Channel and organize new technological data within an organization.
3. Provide a corporate context to support or refute the acquisition of said technology.

When technology scouting isolates new developments that could potentially provide advantages for an incumbent, strategies to acquire or source this technology become a focal point. Technology transfer, and the commercialization of technological abilities, is an enormous market both in the U.S. and abroad. Though governments, universities, and open source websites (such as Sourceforge, Wikipedia, and Boundless) often provide knowledge and technological know-how free of charge, most often technology is not free.

Technology Sourcing Pros and Cons

In the Information Age knowledge is power, and more than ever companies are trying to protect their knowledge from competitors or freeloaders by using patents and trade secrets. Transfer of technology is therefore expensive, from licensing the patented technology to requesting training in new technological advances for staff. Despite the distinct advantages of staying ahead of the curve relative to technological capabilities, there are some drawbacks to tech transfer. One strong example of the drawbacks in technological transfer and sourcing can be illustrated by the image below.

Stages in technology development

Technology develops through a series of stages: basic technology research, research to prove feasibility, technology development, technology demonstration, system/subsystem development, and system test, launch & operations.

The first five levels of innovation, from basic research to technology demonstration, are often where investment begins pouring in, alongside the attempt to implement in order to stay competitive. As you may note, this is prior to the testing phases and therefore investors at this stage must accept the inherent risk of the new technology presenting significant hurdles to optimizing perceived potential or effective implementation. Early adopters and innovators suffer the risk of employing a new technology that has not been fully debugged, minimizing what should have been strong returns on investment (ROI). Technology scouts should therefore be highly circumspect and meticulous in their research processes, ensuring that new technological innovations will indeed provide what they promise.

4.5: Intrapreneurship

4.5.1: Defining Intrapreneurship

Intrapreneurship means behaving like an entrepreneur while working within a large organization.

Learning Objective

Define intrapreneurship as a means of enabling organizational change and the pursuit of an innovative culture

Key Points

• The intrapreneur acts as an “inside entrepreneur” who focuses on innovation and creativity while operating within the goals and environment of an organization.
• Intrapreneurs bring their ideas to the firm to generate new products, processes, or services and thereby act as a force for change within the organization. Intrapreneurship adds to the innovation potential of an organization.
• In many ways, the benefits of intrepreneurship are difficult to forecast and thus difficult to justify. As a result, good managers must be long-term oriented and open-minded to implement entrepreneurship.

Key Terms

innovation

A change in customs; something new and contrary to established customs, manners, or rites.

entrepreneur

A person who organizes and operates a business venture and assumes much of the associated risk.

Intrapreneurship means behaving like an entrepreneur while working within a large organization. According to social scientist Joseph Schumpeter, introducing new technologies, increasing efficiency and productivity, and generating new products or services are all qualities characteristic of intrepreneurs.

Intrapreneurs and Corporate Management

Intrapreneurship is now known as the practice of a corporate management style that integrates risk-taking and innovation approaches. It also incorporates the reward and motivational techniques that are traditionally thought of as being the sole province of entrepreneurship.

The intrapreneur acts as an “inside entrepreneur” who focuses on innovation and creativity while operating within the goals and environment of an organization. Intrapreneurs bring their ideas to the firm to generate new products, processes, or services and thereby act as a force for change within the organization. Capturing a little of the dynamic nature of entrepreneurial management (trying things until successful, learning from failures, attempting to conserve resources, and so on) adds to the innovation potential of an otherwise static organization without exposing those employees to the risks or accountability normally associated with entrepreneurship.

Theory and Practice

Incorporating entrepreneurial concepts into traditional corporate environments is easy to promote in theory: capturing the innovative attitudes of small start-ups within the larger organizational context (i.e., with more resources) seems intuitive. In reality, entrepreneurship is often much easier to discuss in a classroom than to integrate into an actual organization. There are many reasons for this that generally boil down to simple issues of size and corporate inertia.

Companies are built on structures and hierarchies which in turn create a dependable and repeatable operational process. This process leads to value creation, and efficiency is always a focal point in operational contexts. When innovation and intrepreneurship enters this equation they are often seen as costs without tangible and definite benefits, and as lacking consistency and applicability to the current model. In many ways, the benefits of intrepreneurship are difficult to forecast and thus difficult to justify. As a result, good managers must be long-term oriented and open-minded in order to capture the benefits of instilling an intrepreneurial spirit.

4.5.2: Building Support for Intrapreneurship

Building internal support for intrepreneurship is a prerequisite to creating meaningful change in an organization.

Learning Objective

Justify the role of the intrapreneur, not only as an innovative thinker but also a strategic communicator capable of initiating change organizationally.

Key Points

• An intrapreneur is tasked not only with creating a new and innovative concept but also with communicating the concept in a way that builds support for the new initiative.
• One useful way to integrate stakeholders and speak the language of upper management is to numerically demonstrate that a new idea is financially and strategically feasible.
• Building support by identifying and communicating with key stakeholders and decision-makers is essential to bringing change to an organization.
• Intrapreneurs must also be willing to become change agents: people who act as catalysts for incorporating new ideas within the organization. Intrapreneurs, from this perspective, must display strong leadership and communication skills.

Key Term

comprehensive

Broadly or completely covering; including a large proportion of something.

Building support is important when you are bringing change to the organization. Employees bold enough to be intrepreneurs must recognize the challenge they are taking on from the organizational frame. Organizations have great momentum and are, in most cases, inherently resilient to change. This places a great strain on an innovative employee with an interesting idea because s/he is tasked not only with implementing the idea but also with communicating it to key decision-makers to gain approval.

Key Stakeholders

Intrapreneurs need to know who the key stakeholders are and how to capture their attention. For starters, upper management is often where the decision-making power lies. Having access to upper management, and understanding the strategic motivations behind their decisions, plays an integral role in building top-down support organizationally. Customers are also key stakeholders because their needs are the primary determinant of organizational trajectory. Recognizing what customers want and learning how to give it to them more effectively are integral to successful intrapreneurship.

One useful way to integrate stakeholders and speak the language of upper management is to numerically demonstrate that a new idea is financially and strategically feasible. A net present value (NPV) analysis factors in the total time it will take to initiate a new project, along with costs incurred and value generated over a given timeframe. This enables intrapreneurs a tool to communicate, in today’s dollars, how much a given new venture will cost compared with how much it will bring in (i.e., a profit margin).

Being a Change Agent

A change agent

Marissa Mayer was recruited from Google to be the Yahoo CEO so she could set and execute the strategy that might turn the company around.

Change agents know how to get people in an organization involved in solving their own problems. A change agent’s main strength is a comprehensive knowledge of human behavior supported by a number of intervention techniques. Understanding not only how to innovate but also how to operate as a catalyst for change is a useful characteristic for aspiring intrapreneurs. Building support is largely a social and behavioral challenge, and change agents understand how to communicate why a proposed change is important and how it is attainable.

4.6: Managing Change for Organizations

4.6.1: Managers as Leaders of Change

Leaders are in the unique role of not only designing change initiatives but also enacting and communicating them.

Learning Objective

Review the strategies leaders must use to lead change effectively

Key Points

• Managing change requires more than simple planning; the significant human element of change resistance needs to be addressed to ensure success.
• Leaders must define change strategy and communicate it effectively to shareholders, empower and support employees, and mitigate resistance to the change initiative.
• Conner identifies six distinct leadership styles related to change: anti-change, rational, panacea, bolt-on, integrated, and continuous. Each leadership style represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed.
• Conner also posited that the six leadership styles are related to two different types of organizational change: first-order change and second-order change. Different leadership styles are more effective in different situations.

Key Terms

leading

To conduct or direct with authority.

attribute

A characteristic or quality of a thing.

Managing change requires strong leadership and an understanding of how organizational change occurs. Leaders are in the unique role of not only designing change initiatives but enacting and communicating them to subordinates. Managing change requires more than simple planning: the significant human element of change resistance needs to be addressed to ensure success.

Leadership Strategies for Change

Successful change management is more likely if leaders:

• Create a definable strategy – Define measurable stakeholder aims, create a business case for their achievement (and keep it continuously updated), monitor assumptions, risks, dependencies, costs, return on investment, and cultural issues affecting the progress of the associated work.
• Communicate effectively – Explain to stakeholders why the change is being undertaken, what the benefits of successful implementation will be, and what how the change is being rolled out.
• Empower employees – Devise an effective education, training, or skills upgrading scheme for the organization.
• Counter resistance – Identify employee issues and align them to the overall strategic direction of the organization. Adapt the change initiative when necessary to mitigate discontentment.
• Support employees – Provide personal counseling (if required) to alleviate any change-related fears.
• Track progress – Monitor the implementation and fine-tuning as required.

These six components of change are the responsibility of management to create and implement.

The reengineering process

Change management is often termed a “re-engineering process.” This flowchart shows the reciprocal relationships involved in each step: the mission defines and is accomplished via work processes, which execute and are guided by decisions, which consider and are supported by information, which employs and are processed via technology.

Six Leadership Styles for Change

Conner (1998) identified six distinct leadership styles related to change: anti-change, rational, panacea, bolt-on, integrated, and continuous. Each leadership style “represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed.” Stopper (1999) characterizes each of Conner’s leadership styles in this way:

• The anti-change leader – A leader embracing this style seeks to avoid change as much as possible. The message is, “Stay the course. Keep adjustments small. No need to change in any major way.”
• The rational leader – This leader focuses on how to constrain and control change with logical planning and clearly defined steps.
• The panacea leader – The panacea leader believes that the way to respond to pressure for change is to communicate and motivate. These leaders understand the resilience to change they are likely to encounter as well as the inevitability of change as organizations evolve. They tend to focus on fostering enthusiasm for change.
• The bolt-on leader – This leader strives to regain control of a changing situation by attaching (bolting on) change management techniques to ad-hoc projects that are created in response to pressure for change. This manager is more concerned about helping others change than creating a strategy for the actual change itself.
• The integrated leader – The integrated leader searches for ways to use the structure and discipline of what Harding and Rouse (2007) called “human due diligence” (the leadership practice of understanding the culture of an organization and the roles, capabilities, and attitudes of its people) as individual change projects are created and implemented. The concept is simply to combine, or integrate, human and cultural concerns with the strategy itself.
• The continuous leader – The continuous leader works to create an agile and quick-responding organization that can quickly anticipate threats and seize opportunities as change initiatives are designed and implemented. Continuous leaders believe that to disruption is continuous, and adaptability a necessary organizational competency.

Conner says that these six leadership styles are related to two different types of organizational change: first-order change and second-order change. First-order change is incremental, piecemeal change. According to Conner, second-order change is “nonlinear in nature and reflects movement that is fundamentally different from anything seen before within the existing framework.”

Conner identifies the first four leadership styles as appropriate for managing first-order change. When an organization is engaging in discontinuous, transformational change, however, integrated and continuous leadership styles are more appropriate .

4.6.2: Types of Organizational Change

There are three main categories of change: business process re-engineering, technological change, and incremental change.

Learning Objective

Differentiate between business process re-engineering, technological change, and incremental change as the three main categories of organizational development

Key Points

• Business process re-engineering focuses on the analysis and design of workflows and processes within an organization.
• Technological change refers to the process of invention, innovation, and diffusion of technology or processes.
• Incremental change means introducing many small, gradual changes to a project instead of a few large, rapid changes.

Key Terms

incremental

Occurring over a series of gradual increments, or small steps.

devise

To use one’s intellect to plan or design something.

incremental model

A method of product development where the model is designed, implemented, and tested incrementally (a little more is added each time) until the product is finished.

Change management is an approach to shifting or transitioning individuals, teams, and organizations from their current state to a desired future state. It is an organizational process aimed at helping stakeholders accept and embrace change in their business environment. In some project management contexts, change management refers to a project management process wherein changes to a project are formally introduced and approved.

Kotter defines change management as the utilization of basic structures and tools to control any organizational change effort. Change management’s goal is to maximize organizational benefit, minimize impacts on workers, and avoid distractions. There are different types of change an can organization face.

Business Process Re-Engineering

Business process re-engineering (BPR) is a business management strategy first pioneered in the early 1990s that focuses on the analysis and design of workflows and processes within an organization. BPR aims to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. In the mid-1990s, as many as 60% of the Fortune 500 companies claimed to have either initiated re-engineering efforts or begun planning for it.

BPR helps companies radically restructure their organizations by focusing on their business processes from the ground up. A business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering emphasizes a holistic focus on business objectives and how processes relate to them, encouraging full-scale recreation of processes rather than iterative optimization of sub-processes.

Business process re-engineering is also known as business process redesign, business transformation, and business process change management.

Incremental Change

Incremental change is a method of introducing many small, gradual (and often unplanned) changes to a project instead of a few large, rapid (and extensively planned) changes. Wikipedia illustrates the concept by building an encyclopedia bit by bit. Another good example of incremental change is a manufacturing company making hundreds of small components that go into a larger product, like a car. Improving the manufacturing process of each of these integral components one at a time to cut costs and improve process efficiency overall is incremental change.

Technological Change

Technological change (TC) describes the overall process of invention, innovation, and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress. In essence, TC is the invention of a technology (or a process), the continuous process of improving a technology (which often makes it cheaper), and its diffusion throughout industry or society. In short, technological change is based on both better and more technology integrated into the framework of existing operational processes.

4.6.3: Inside and Outside Forces for Organizational Change

Inside forces include strategic and human resource changes, while outside forces include macroeconomic and technological change.

Learning Objective

Identify the internal and external pressures for change, which drive organizations to adapt and evolve

Key Points

• Change management is an approach to shifting individuals, teams, and organizations to a desired future state. Examples of organizational change can include strategic, operational, and technological change that can come from inside or outside the organization.
• Outside forces for change include macroeconomics, technological evolution, globalization, new legislation, and competitive dynamics.
• Inside forces for change include intrapreneurship, new management and restructuring.
• The first step in effective change management is being prepared, in a timely and knowledgeable fashion, for internal and external potentialities that may force organizational adaptation.

Key Term

macroeconomic

Relating to the entire economy, including the growth rate, money and credit, exchange rates, the total amount of goods and services produced, etc.

Change management is an approach to shifting or transitioning individuals, teams, and organizations from their existing state to a desired future state. Examples of organizational change can include strategic, operational, and technological changes coming from inside or outside the organization. Understanding key internal and external change catalysts is critical to successful change management for organizational leaders.

Outside Forces

While there are seemingly endless external considerations that can motivate an organization to change, a few common considerations should be constantly monitored. These include economic factors, competitive dynamics, new technology, globalization, and legislative changes:

• Economics – The 2008 economic collapse is a strong example of why adaptability is important. As consumers tightened their belts, organizations had to either do the same and lower supply to match lowered demand, or come up with new goods to entice them. Migrating from one volume to another can financially challenging, and change strategies such as creating new affordable product lines or more efficient operational paradigms are key to changing for success.
• Competition – Changes in the competitive landscape, such as new incumbents, mergers and acquisitions, new product offerings, and bankruptcies, can substantially impact a company’s strategy and operations. For example, if a competitor releases a new product that threatens to steal market share, an organization must be ready to change and adapt to retain their customer base.
• Technology – Technological changes are a constant threat, and embracing new technologies ahead of the competition requires adaptability. When media went digital, adaptable companies found ways to evolve their operations to stay competitive. Many companies that could not evolve quickly failed.
• Globalization – Capturing new global markets requires product, cultural, and communicative adaptability. Catering to new demographics and identifying opportunities and threats as they appear in the global market is integral to adapting for optimal value.
• Legislation – New laws and legislation can dramatically change operations. Companies in industries that impact the environment must constantly strive to adapt to cleaner and more socially responsible operating methodologies. Failing to keep pace can result in substantial fines and financial detriments, not to mention negative branding.

Inside Forces

There are many inside forces to keep in mind as well, ranging from employee changes to cultural reform to operational challenges.Understanding where this change is coming from is the first step to timely and appropriate change management.

• Management Change – New CEOs or other executive players can significantly impact strategy and corporate culture. Understanding the risks associated with hiring (or promoting for) new upper management is key to making a good decision on best fit.
• Organizational Restructuring – Organizations may be required to significantly alter their existing structure to adapt to the development of new strategic business units, new product lines, or global expansion. Changing structure means disrupting hierarchies and communications, which must then be reintegrated. Employees must be trained on the change and the implications it will have for their everyday operations.
• Intrapreneurship – New ideas come from inside the organization as well as outside the organization, and capitalizing on a great new idea will likely require some internal reconsideration. Integrating a new idea may require reallocation of resources, new hires and talent management, and new branding.

4.6.4: Common Targets of Organizational Change

Change management can be implemented to change an organization’s mission, strategy, structure, technology, or culture.

Learning Objective

Recognize and discuss the various components of an organization which may undergo change through the evolution and adaptation of organizational strategy and/or objectives

Key Points

• Organizational change management should begin with a systematic diagnosis of the current situation in order to determine the organization’s need for and ability to change.
• Prior to a cultural change initiative, a needs assessment should examine the current organizational culture and operations. The goal is a careful and objective consideration of what is working and what is not.
• Areas of change include mission, strategy, operations, technology, culture, branding, employees, and work flows.
• Change management should also make use of performance metrics, such as financial results, operational efficiency, leadership commitment, communication effectiveness, and the perceived need for change.

Key Terms

organization

A group of people or other legal entities with an explicit purpose and written rules.

change management

The controlled implementation of required changes to some system; includes version control and planned fallback.

When an organization requires changes to address counterproductive aspects of organizational culture, the process can be daunting. Cultural change is usually necessary to reduce employee turnover, influence employee behavior, make improvements to the company, refocus the company objectives, rescale the organization, provide better customer service, or achieve specific company goals and results. Cultural change can be impacted by a number of elements, including the external environment and industry competitors, changes in industry standards, technology changes, the size and nature of the workforce, and the organization’s history and management.

Assessing Change Needs

Prior to launching a cultural change initiative, a company should carry out a needs assessment to examine the existing organizational culture and operations. Careful and objective consideration of what is working and what is not, as well as what is parallel with the broader organizational objectives and what is not, are critical to success here.

Areas that need to change can be identified through interviews, focus groups, observation, and other methods of internal and external research. A company must clearly identify the existing culture and then design a change process to implement the desired culture.

Common Areas of Change

Common areas of organizational change include:

• Mission
• Strategy
• Operational changes, including structure and hierarchies
• Technology
• Culture
• Employees and/or management
• Work flows (particularly relevant in manufacturing)
• Branding

Organizational change management should begin with a systematic diagnosis of the existing situation in order to determine the organization’s need for and ability to change. The objectives, content, and process of change should be specified as part of the change management plan.

Change management processes can benefit from creative marketing to facilitate communication between change audiences and a deep social understanding of leadership styles and group dynamics. To track transformation projects, organizational change management should align group expectations, communicate, integrate teams, and manage and train people. Change management should also make use of performance metrics including financial results, operational efficiency, leadership commitment, communication effectiveness, and the perceived need for change in order to design appropriate strategies that make the change in organizational culture as smooth and as efficient as possible.

4.6.5: Organizational Development

Organizational development is a deliberately planned effort to increase an organization’s relevance and viability.

Learning Objective

Explain the role of organizational development in leadership and organizational change

Key Points

• Organizational development (OD) is an ongoing, systematic process of implementing effective organizational change.
• The purpose of organizational development is to address the evolving needs of successful organizations.
• Organizational development is often facilitated with the assistance of a “catalyst” or “change agent” such as an effective or influential leader.
• An important role of a leader is to analyze and assess the effectiveness of this developmental process and motivate the organization to achieve developmental targets.

Key Terms

viability

The ability to live or to succeed.

catalyst

Someone or something that encourages progress or change.

Organization development (OD) is a deliberately planned effort to increase an organization’s relevance and viability. Vasudevan has referred to OD as a systemic learning and development strategy intended to change the basics of beliefs, attitudes, and relevance of an organization’s values and structure. This process helps the organization to better absorb disruptive technologies, market opportunities, and ensuing challenges and chaos. Essentially, organizational development is the framework for a change process that is designed to produce desirable and positive results for all stakeholders and the environment.

The Nature of Organizational Development

Organizational development is a lifelong, built-in mechanism to improve an organization internally. This is often done with the assistance of a “change agent” or “catalyst” who enables appropriate theories and techniques from applied behavioral sciences, anthropology, sociology, and phenomenology. The terms “change agent” and “catalyst” suggest a leader who is engaged in transformation leadership as opposed to management (management being a more incremental or efficiency-based change methodology).

A manager providing advice to a team

Organizational development is often facilitated with the assistance of a “catalyst” or “change agent” such as an influential manager.

Although behavioral science provided the basic foundation for the study and practice of OD, new and emerging fields of study have made their presence felt. Experts in systems thinking and organizational learning have also emerged as OD catalysts. These emergent perspectives view the organization as the holistic interplay of a number of systems, all of which impact the processes and outputs of the entire organization.

Applications of Organizational Development

The purpose of OD is to address the evolving needs of successful organizations. It represents a concerted collaboration of internal and external experts in the field to discover the processes an organization can use to become more effective.

Organizational development aims to improve an organization’s capacity to handle its internal and external functioning and relationships. This includes improving interpersonal and group processes; communication; the organization’s ability to cope with problems; decision-making processes; leadership styles; conflict and trust; and cooperation among organizational members.

Weisbord

Weisbord presents a six-box model for understanding—and thereby changing and improving—an organization:

1. Purposes: Are employees clear about the organization’s mission, purpose, and goals? Do they support the organization’s purpose?
2. Structure: How is the organization’s work divided? Is there an adequate fit between the purpose and the internal structure?
3. Relationships: What are the relationships between individuals, units, or departments that perform different tasks? What are the relationships between the people and the requirements of their jobs?
4. Rewards: For what actions does the organization formally reward or punish its members?
5. Leadership: Does leadership watch for “blips” among the other areas and maintain balance among them?
6. Helpful mechanisms: Do planning, control, budgeting, and other information systems help organization members accomplish their goal?

Lewin

Lewin’s description of the process of change involves three steps:

1. Unfreezing: Faced with a dilemma or issue, the individual or group becomes aware of a need to change.
2. Changing: The situation is diagnosed and new models of behavior are explored and tested.
3. Refreezing: Application of new behavior is evaluated, and if it proves to be reinforcing, the behavior is adopted.

Effectiveness of Organizational Development

The efficacy of organizational development is predicated on the adaptability of the organization and the overall successful integration of new ideas and strategies within an existing framework. Resistance to change is a fundamental organizational problem as all organizations have a degree of general inertia. This is further complicated by the difficulty in quantitatively measuring changes in areas that are generally intangible (i.e., culture).

To remedy this, organizations pursuing OD must set clear and measurable objectives prior to committing to a change initiative. An important role of the leader is to analyze and assess the effectiveness of this developmental process and motivate the organization to achieve developmental targets.

4.7: Managing Change for Employees

4.7.1: Phases of Organizational Change: Lewin

Kurt Lewin’s phases of change (unfreezing, change, and freezing) describe how people react and adapt to change.

Learning Objective

Explain Kurt Lewin’s Phases of Changes model, a three-stage process allowing for organizational change

Key Points

• Kurt Lewin described change as a three-stage process that includes unfreezing, change, and freezing. Lewin emphasizes that change is not a series of individual processes but rather one that flows from one process to the next.
• The first stage (unfreezing) involves overcoming inertia and dismantling the existing “mind set.” This involves getting over the initial defense mechanisms that people exhibit to avoid making a change.
• In the second stage, the actual change occurs. This is typically a period of confusion and transition in which people are unsure about the change and what may happen in the future.
• In the third stage (freezing), the new mindset of the change begins to become the standard, and people’s comfort levels return to normal.
• Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of as individual stages.

Key Terms

Defense Mechanisms

Psychological strategies (such as denial, repression, or rationalization) that are brought into play to avoid or adjust to uncomfortable situations.

Organizational Psychology

The scientific study of employees, workplaces, and organizations.

Change is a fundamental component of any organization looking to continuously improve and evolve. A few researchers and academics have determined how to best model and present methods of change for managing employees. Kurt Lewin was one of these academics and was known as one of the leaders of organizational psychology.

Kurt Lewin

Lewin was an influential behavioral and organizational psychologist who proposed the Phases of Change Model.

The Three Phases of Change

This early model developed by Lewin describes change as a three-stage process of unfreezing, change, and freezing. In this Phases of Change Model, Lewin emphasizes that change is not a series of individual processes but rather one that flows from one process to the next.

The first stage (unfreezing) involves overcoming inertia and dismantling the existing mind set. It involves getting over the initial defense mechanisms that people exhibit to avoid making a change. People eventually realize that change is necessary and urgent, and this realization allows them to move on to the next stage.

In the second stage, the actual change occurs. This is typically a period of confusion and transition in which people are unsure about the change and what may happen in the future. People are aware that the old ways are being challenged, but they do not yet have a clear picture as to what these ways will be replaced with. During this stage, an organization’s leaders need to focus on clearly communicating to employees the reasons for change and the steps needed to achieve it.

Lewin labeled the third and final stage freezing, though it may be useful to think of this stage as “refreezing.” During this stage, the new mindset of the change begins to become the standard, and people’s comfort levels return to normal. Many people criticize this component of Lewin’s model, arguing that there is never time for people to comfortably adapt to change in the fast-paced world of today.

Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of individual stages. This is important for understanding how employees may react to change in the workplace and why some may adapt more quickly to change than others.

4.7.2: Strategies for Successful Organizational Change

To implement a successful change, managers should focus on communication, training, monitoring, and counseling for the workforce.

Learning Objective

Evaluate differing strategies for enabling changes within an organizational culture while mitigating resistance and issues

Key Points

• Organizational change often elicits concern and discomfort among employees. Change is a human effort as much as it is a strategic one.
• During an organizational change, it is essential for managers to communicate the reasons for the change as well as the process needed to make the change. This should include clear objectives and strategic implications.
• Effective education and training is essential for employees to understand and adapt to a change in the workforce.
• One of the most important steps in managing a successful change is to monitor how the change is playing out in the organization. Quantitative tools can be used to measure and assess effectiveness.

Key Terms

proactive change

The shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state before being incited by an event.

reactive change

The shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state in response to an event.

Understanding Change Management

When change is implemented in an organization, there is often resistance. This resistance often stems from people’s fear—of change in the work itself, of change in the process of completing work, or of the possibility that the change may result in the loss of their job. As a result, managers and organizational leaders should have a strategic approach to enabling change that ensures it is maximally effective in the organization.

Change management is the study of how to integrate changes without damaging the organizational culture or efficiency. At its core, change management is about knowing strategically what to change and how to manage the human element of this process. Change management is broken into 4 elements:

1. Recognize the changes in the broader business environment
2. Develop the necessary adjustments for the company’s needs
3. Train employees on the appropriate changes
4. Win the support of employees

Note that a central themes of change management revolve around training and supporting employees. This is a critical managerial responsibility for enabling change.

Key Enablers to Change

Transparency and Effective Communication

During an organizational change, it is essential for managers to communicate the reasons for the change as well as the process needed to make the change. For example, if management wants to implement a procedure that will help to improve the production of the workforce, but they require a lot of initial labor to get the new procedure up and running, they should communicate why the change in procedure is necessary. If staff understands why the change is taking place, they will be more likely to agree with the implementation and see the benefit.

Effective Education and Training

Education and training is essential for employees to understand and adapt to a change in the workforce. When a new process is put into place, employees will likely be unfamiliar with the process and how it will fit into their daily workflow. Training in this situation is necessary to help employees become familiar with the change and better adapt to it.

Personal Counseling

When a major change happens in the workplace, some employees may feel very uncomfortable about the change—especially the employees most affected by the change. For these employees it may be useful to have a program, most likely through human resources, that will help them adapt to the change.

Monitoring the Implementation

One of the most important steps in managing a successful change is to monitor how the change is playing out in the organization. This can be done by looking at historical data and examining how employees are performing with the change compared to how they were performing in the past. Additionally, management will want to monitor how the change is affecting the overall production process. If the change is not improving the process after the initial implementation, management may want to fine-tune the process to make sure that the change is successful.

Generic strategy

Maintaining focus on learning and growth (e.g., employee training), internal business processes (e.g., establishing partnerships), customer-oriented processes (e.g., inspiring loyalty), and financial concerns (e.g., maximizing shareholder value) is integral to successful change management.

4.7.3: Steps to Smooth Organizational Change: Kotter

Kotter’s model details a process where managers may initiate, direct, implement, and foster organizational change via employee engagement.

Learning Objective

Employ John Paul Kotter’s eight step model to outline steps toward smooth and efficient change in an organization

Key Points

• John Paul Kotter is a former professor at the Harvard Business School and is regarded as an authority on leadership and change.
• The eight stages of Kotter’s change model include: increase urgency, build the guiding team, get the vision right, communicate for buy-in, empower action, create short-term wins, don’t let up, and make change stick.
• By following Kotter’s eight steps, managers can implement change and make it an integral part of the organization’s culture. This is accomplished by making sure that change sticks with the culture and becomes an expected part of the continued development of the organization.

Key Terms

vision

A clear, distinctive, and specific vision of the future, usually connected with a leader’s strategic advances for the organization.

Buy-in

Support; agreement; approval; blessing (in a secular sense). A sense of believability in the potential outcomes achieved through group process.

John Paul Kotter

John Paul Kotter (born 1947) is a former professor at the Harvard Business School, an acclaimed author, and Chief Innovation Officer at Kotter International. He is regarded as an authority on leadership and change. Kotter created the Eights Steps to Change Model that is currently the most widely-used framework for managing organizational change. In his observations, Kotter concluded that the organizations that are the most successful in implementing change go through the following series of eight steps.

The Eight Steps

1. Increase urgency: Managers must inspire people to move, make objectives real and relevant, and further their desire to make change happen. Getting momentum for change is key.

2. Build the guiding team: The company must get the right people in place as leaders with the right emotional commitment and understanding and the right mix of skills and levels.

3. Get the vision right: Managers must get the team to establish a simple vision and strategy and then focus on the emotional and creative aspects necessary to drive service and efficiency.

4. Communicate for buy-in: Involving as many people as possible, managers must communicate the essentials and appeal and respond to people’s needs. Additionally, they must remove clutter and streamline technological communications, making it efficient rather than overwhelming for employees.

5. Empower action: This step removes obstacles wherever possible, enables constructive feedback, and garners support from leaders—complete with motivational rewards that recognize progress and achievements.

6. Create short-term wins: Managers must set aims that are easy to achieve in manageable chunks. They must also manage the number of initiatives taking place at once and finish current stages before starting new ones.

Short-term wins

A step in Kotter’s model of change is to celebrate short-term wins while working toward an overall goal of change.

7. Don’t let up: Managers must foster and encourage determination, persistence, and ongoing progress reporting. This can be done by highlighting achieved and future milestones.

8. Make change stick: This step reinforces the value of successful change via recruitment, promotion, and new change leaders. The company should change a fundamental part of the culture during this step so people do not consider it as foreign.

By following these eight steps to successful change, managers can work to mitigate the risks associated with changes that employees do not like. In order to reduce potential organizational obstacles, managers have to make sure that all of their employees are on board with the change and are willing to assist with it.

3.3: Behavioral Perspectives

3.3.1: The Behavioral-Science Approach

Learning Objective

Define the behavioral approaches which maximize potential within a company or organization

Key Points

• Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science.
• One application of the behavioral-science approach can be seen in a field called organizational development. Organizational development is an ongoing, systematic process of implementing effective organizational change.
• Behavioral sciences include relational sciences, which deal with relationships, interaction, communication networks, associations, and relational strategies.
• Combined, the behavioral science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development.

Key Term

organizational development

An ongoing, systematic process of implementing effective organizational change using theories from behavioral sciences.

Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science. Behavioral science uses research and the scientific method to determine and understand behavior in the workplace. Many of the theories in the behavioral perspective are included in the behavioral-science approach to management. For example, the Hawthorne studies used the scientific method and are considered to be a part of the behavioral-science approach.

Behavioral science within the business management environment is a specific application of this field, and employs a number of specific types of behavioral observations. This includes concepts such as information processing, relationships and motivation, and organizational development.

Information Processing

Information processing involves determining how people process stimuli in their environment. This field deals with the processing of stimuli from the social environment by cognitive entities in order to engage in decision making, social judgment, and social perception. The field is particularly concerned with information processing as it relates to individual functioning and the survival of an organism in a social environment.

Relationships

Behavioral sciences also include relational sciences that deal with relationships, interaction, communication networks, associations, and relational strategies or dynamics between organisms or cognitive entities in a social system. The emphasis on using quantitative data and qualitative research methods to determine how people process information and understand social relationships is important to helping managers better understand the proven methods for increasing employee motivation and employee productivity. The behavioral-science approach and the myriad of fields it encompasses is the most common study of management science today.

Organizational Development

The primary application of the behavioral-science approach can be seen in the field of organizational development. Organizational development is an ongoing, systematic process of implementing effective organizational change. Organizational development is considered both a field of applied behavioral science that focuses on understanding and managing organizational change as well as a field of scientific study and inquiry. It uses components of behavioral sciences and studies in the fields of sociology, psychology, and theories of motivation, learning, and personality to implement effective organizational change and aid in the development of employees.

Organization triangle

This diagram illustrates the idea that structure, process, and the people involved all play a role in an organization’s culture.

Combined, the behavioral-science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development. The study of human behavior in the context of organizational change is an integral part of empowering organizations to grow, adapt, and learn to capture competitive advantage.

3.3.2: Behaviorism: Follett, Munsterberg, and Mayo

Learning Objective

Compare and contrast the three most famous pioneers and founders of the behavioral perspective in organizational theory

Key Points

• Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the behaviorism movement in management theory. They wrote about the importance of considering behavioral aspects of workers in addition to the efficiency of workers.
• Mary Parker Follett (September 3, 1868 – December 18, 1933) was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior.
• Hugo Munsterberg was one of the pioneers of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings.
• Elton Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book The Human Problems of an Industrialized Civilization.

Key Term

Industrial Psychology

A field focusing on topics such as hiring workers with personalities and mental abilities best suited to certain types of vocations.

Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the industrial/organizational psychology and behaviorism movements in management theory. These three individuals wrote about the importance of considering behavioral aspects of workers in addition to the efficiency of workers. This was, in many ways, a continuation of the scientific method, with the critical difference of incorporating the human factors involved in effective management.

Follett

Mary Parker Follett (September 3, 1868 – December 18, 1933) was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior. She criticized the overmanagement of employees, a process now known as micromanaging. Follett was known for the concept of reciprocal relationships and the idea that authority is inferior to integrative collaboration. Managers should enable, not dictate.

She also distinguished herself in the field of management by being sought out by President Theodore Roosevelt as his personal consultant on managing not-for-profit, non-governmental, and voluntary organizations. In her capacity as a management theorist, Mary Parker Follett pioneered the understanding of lateral processes within hierarchical organizations. Her contributions aided the beginning of the behaviorism movement of management by presenting the worker as more than just a machine.

Mary Parker Follett

Mary Parker Follett defined management as “the art of getting things done through people.”

Munsterberg

Hugo Munsterberg (June 1, 1863 – December 19, 1916) was a German-American psychologist. He was one of the pioneers of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings. Munsterberg’s writings are considered the genesis of the field of industrial psychology.

Industrial psychology, according to Munsterberg, focuses on topics such as hiring workers with personalities and mental abilities best suited to certain types of vocations, as well as on ways to increase motivation, performance, and retention. Munsterberg suggests that psychology could be used in many different industrial applications, including management, vocational decisions, advertising, job performance, and employee motivation. Many of Munsterberg’s ideas, especially the idea of matching an individual’s personality with the correct job set and skills, are common in the use of industrial/organizational psychology today.

Hugo Munsterberg

Munsterberg is considered the father of industrial/organizational psychology.

Mayo

George Elton Mayo (December 26, 1880 – September 7, 1949) was an Australian psychologist, sociologist, and organization theorist. Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book The Human Problems of an Industrialized Civilization (1933).

The research he conducted in the Hawthorne studies of the 1930s showed the importance of groups in affecting the behavior of individuals at work. Mayo’s employees Roethlisberger and Dickson conducted the practical experiments. This enabled him to make certain deductions about how managers should behave. He concluded that people’s work performance is dependent on both social issues and job content. He suggested a tension between workers’ “logic of sentiment” and managers’ “logic of cost and efficiency” that could lead to conflict within organizations. Mayo’s studies contributed to the behaviorism movement in management as managers became more aware of the “soft” skills that are important to successful management.

Follett, Munsterberg, and Mayo each introduced important components and ideas into the behaviorism perspective of management. They all believed that successful management comes from understanding how to best treat and motivate employees in order to help them succeed in their jobs and become as efficient as possible.

3.3.3: The Human Side: Hawthorne

Learning Objective

Evaluate Mayo and Roethlisberger’s Hawthorne study relative to the behavioral perspective in organizational theories

Key Points

• The Hawthorne studies, which were conducted by Elton Mayo and Fritz Roethlisberger in the 1920s with the workers at the Hawthorne plant of the Western Electric Company, were part of an emphasis on socio-psychological aspects of human behavior in organizations.
• Hawthorne researchers hypothesized that choosing one’s own coworkers, working as a group, being treated as special (as evidenced by working in a separate room), and having a sympathetic supervisor were reasons for increases in worker productivity.
• The Hawthorne studies found that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting employees’ need and desire to belong to a group and be included in decision making and work.

Key Term

Hawthorne studies

A series of investigations conducted in the 1920s emphasizing the socio-psychological aspects of human behavior in organizations.

The Hawthorne studies were conducted with the workers at the Hawthorne plant of the Western Electric Company by Elton Mayo and Fritz Roethlisberger in the 1920s. The Hawthorne studies were part of a refocus on managerial strategy incorporating the socio-psychological aspects of human behavior in organizations.

Western Electric Company, the location of the Hawthorne studies

This is where the studies where conducted—a factory outside of Chicago.

The studies suggested that employees have social and psychological needs—along with economic and financial needs—which must be met in order to be motivated to complete their assigned tasks. The human relations movement is concerned with morale, leadership, and factors that aid in the cooperation of workers. 

This theory of management was a byproduct of the issues that arose from the classical, scientific perspectives on management (i.e., Taylorism). The simplest explanation of the hypothesis being investigated is quite intuitive. Employees (i.e. human resources) are not merely motivated by financial gain, and productivity is not simply a byproduct of incentives and optimized working spaces. People are motivated by inclusion, constructive feedback, interest, autonomy, and a wide variety of other ‘soft’ factors (i.e. factors aside from money and other tangible resources).

Results of the Hawthorne Studies

The studies originally looked into whether workers were more responsive and worked more efficiently under certain environmental conditions, such as improved lighting. The results were surprising, as Mayo and Roethlisberger found that workers were more responsive to social factors—such as the people they worked with on a team and the amount of interest their manager had in their work—than the factors (lighting, etc.) the researchers had gone in to inspect.

The Hawthorne studies helped conclude that workers were highly responsive to additional attention from their managers and the feeling that their managers actually cared about, and were interested in, their work. The studies also concluded that although financial motives are important, social factors are equally important in defining the worker productivity.

There were a number of other experiments conducted in the Hawthorne studies, including one in which two women were chosen as test subjects and were then asked to choose four other workers to join the test group. Together, the women worked assembling telephone relays in a separate room over the course of five years (1927–1932), and their output was measured. 

The measuring began in secret. It started two weeks before moving the women to an experiment room and continued throughout the study. In the experiment room, they had a supervisor who discussed changes with them and, at times, used their suggestions. The researchers then spent five years measuring how different variables impacted both the group’s and the individuals’ productivity. Some of the variables included giving two five-minute breaks (after a discussion with the group on the best length of time), and then changing to two 10-minute breaks (not the preference of the group).

Intangible Motivators

Changing a variable usually increased productivity, even if the variable was just a change back to the original condition. Researchers concluded that the employees worked harder because they thought they were being monitored individually. Researchers hypothesized that choosing one’s own coworkers, working as a group, being treated as special (as evidenced by working in a separate room), and having a sympathetic supervisor were the real reasons for the productivity increase.

The Hawthorne studies showed that people’s work performance is dependent on social issues and job satisfaction, and that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting individuals’ need and desire to belong to a group and be included in decision making and work.

3.3.4: Managerial Assumption: McGregor

Learning Objective

Explain Douglas McGregor’s Theory X and Theory Y approach, merging classical and behavioral organizational theories

Key Points

• Douglas McGregor was a management professor at the MIT Sloan School of Management. He wrote a book in 1960 called The Human Side of Management, which suggested motivating employees through authoritative direction and employee self-control, respectively called Theory X and Theory Y.
• Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. It assumes that managers need to motivate through coercion and punishment.
• Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories.
• Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priority in maximizing output in the workplace.

Key Terms

Theory Y

Postulates that employees are capable of being ambitious and self-motivated under suitable conditions; contrasted with Theory X.

Theory X

Suggests that employees are inherently lazy and irresponsible and will tend to avoid work unless closely supervised and given incentives; contrasted with Theory Y.

Douglas McGregor was a management professor at the MIT Sloan School of Management. He wrote a book in 1960 called The Human Side of Management, which suggested motivating employees through authoritative direction and employee self-control. McGregor’s book was voted the fourth most influential management book of the 20th century in a poll of the Fellows of the Academy of Management.

McGregor’s main theory is comprised of Theory X and Theory Y. Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories. Often, managers’ actions toward their employees are affected by the theory to which they subscribe.

Theory X

In Theory X, managers tend to micro-manage and closely supervise employees. Complex hierarchical structures are needed in order to offer a narrow span of control at every level of the organization. Employees show little ambition without an incentive program and avoid responsibility whenever possible. Managers in Theory X rely more heavily on punishment, fear, and coercion as motivational techniques and less on reward. Managers and employees in this theory are generally mistrusted and they do not have rewarding relationships. Usually these managers believe that the sole purpose of the employee’s interest in the job is money.

Theory Y

Theory Y managers are generally the opposite. They believe that given the proper conditions, employees will learn to seek out and accept responsibility and to exercise self-direction in accomplishing objectives, that most people will want to do well at work, and that the satisfaction of doing a good job will be a strong motivation. Many people interpret Theory Y as a positive set of beliefs about workers.

McGregor thinks that Theory Y managers are more likely than Theory X managers to develop the climate of trust with employees that is required for human-resource development. This type of human-resource development is much more similar to the behavioral management theories of Maslow’s self-actualization and the Hawthorne studies than any of the classical theories of management.

Theory X or Theory Y?

Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priority in maximizing output in the workplace. Both McGregor and Maslow would say that in order to help employees achieve maximum efficiency and happiness with their work, a Theory Y manager would need to promote morality, creativity, problem solving, and a lack of prejudice. McGregor was a lifetime proponent of Theory Y.

Modern organizations in developed countries generally side with McGregor, in that they believe Theory Y is superior in getting positive results from employees (and subsequently job satisfaction for employees). However, both theories are still prominent in the workplace, where many managers treat their employees as if they are lazy and likely to perform poorly without stringent rules and supervision. In management, just as everywhere else, it is difficult to effect social change in the face of human nature, even when the benefits are established.

3.3.5: Productivity: Argyris

Learning Objective

Identify Chris Argyris’s key contributions to organizational theory through single-loop and double-loop learning

Key Points

• Argyris studied how humans design and decide on their actions under difficult or stressful situations. He believed that human actions are controlled by environmental variables, which determine the key differences between single-loop learning and double-loop learning.
• In single-loop learning, individuals, groups, or organizations modify their actions according to the difference between expected and obtained outcomes.
• In double-loop learning, individuals, groups, or organizations question the values, assumptions, and policies that led to the actions in the first place.
• Argyris’s theory of single- and double-loop learning has been applied to management theory in order to suggest the best way for employees to learn and think about new goals and strategies for an organization.

Key Terms

single-loop learning

A theory that says individuals, groups, or organizations modify their actions according to the difference between expected and obtained outcomes.

learning organization

A company that facilitates the learning of its members and continuously transforms itself.

double-loop learning

A theory in which an organization or individual questions the values, assumptions, and policies that led to a given situation.

Chris Argyris is an American business theorist, a professor emeritus at Harvard Business School, and a thought leader at Monitor Group. He is best known for his work on learning theories in the area of learning organizations.

Argyris conducted a series of research studies in action science, which studies how humans design and decide on their actions under difficult or stressful situations. Argyris believed that human actions are controlled by environmental variables, which determine the key differences between single-loop and double-loop learning.

Single-Loop Learning

In single-loop learning, entities (such as individuals, groups, or organizations) modify their actions according to the difference between expected and obtained outcomes. This essentially means that learning is through experience and direct reflection on outcomes, where the ends are justifying the means and dictating the fulcrum of the discussion and learning outcomes.

In many ways, this is a more reactionary approach. Individuals are tasked with identifying successes and failures, pursuing formulas for the former and minimizing the latter. While this type of learning, and this broader type of behavior, is extremely common in the real world, it is not the ideal method to learn and adapt from a broader organizational level. It tends to be simple and short-term, which is not always conducive to sustainability.

Double-Loop Learning

In double-loop learning, the entities question the values, assumptions, and policies that led to the actions in the first place; if they are able to view and modify those values, then second-order or double-loop learning has taken place. This is a more integrative, process-oriented, and collaborative approach. It is also much more complex, difficult, and sensitive, as the core values and strategies in place must be analyzed, questioned, and defended (or discarded).

The simple truth is that people fear change, actively avoid conflict, and generally preserve the status quo. Double-loop learning requires the bravery to challenge what is established organizationally, identify broader systemic issues, and fix problems at the source.

Single- and double-loop learning

Argyris wrote about the theories of single- and double-loop learning, which determine how people make decisions in difficult situations.

For example, a company that is facing a problem with its management strategy may decide to focus on how to improve or implement the strategy in different ways. In this situation, the company uses single-loop learning because management is focused on making changes without reconsidering the fundamental standard or strategy itself. However, if the company were to entirely reconsider the problematic strategy and start from scratch, this would constitute double-loop learning. Double-loop learning may lead to a change in the original strategy or goals that the company had in the first place.

Argyris’s theory of single- and double-loop learning has been applied to management theory in order to suggest the best way for employees to learn and think about new goals and strategies for an organization.

3.4: Modern Thinking

3.4.1: Quantitative and Analytical Management Tools

Quantitative tools are used by management to determine where a company is doing well or struggling compared to the industry and competitors.

Learning Objective

Give examples of quantitative and analytical management tools that assist organizations in better understanding workflow, financials and employee efficiency

Key Points

• Many quantitative and analytic tools are available for managers to better understand workflow processes, financial management, and employee efficiency.
• A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility.
• Simulation is the imitation of a real-world process or system over time.
• Trend charts are often used in management to display data over time to explore any potential trends, either positive or negative, that require additional attention by management. It is important to use statistical confidence intervals when utilizing this type of forecast.
• Benchmarking allows a manager to see how different aspects of a business are performing compared to national, regional, and industry standards. It also allows management to explore how the company is performing compared to its competitors.
• Financial projections and net-present-value (NPV) analyses are also commonplace when deciding upon new operations quantitatively—where the company predicts profitability in today’s dollars.

Key Terms

benchmarking

A technique that allows a manager to compare metrics, such as quality, time, and cost, across an industry and against competitors.

decision tree

A visualization of a complex decision-making situation in which the possible decisions and their likely outcomes are organized in the form of a graph that resembles a tree.

Managers can use many different quantitative and analytic tools to better understand workflow processes, financial management, and employee efficiency. These tools, such as decision tress, simulation, trend charts, benchmarking, and financial projections, help managers improve their decision-making abilities, determine how the business is performing relative to competitors, and discover opportunities for improvement. Using these tools to create quantitative and measurable metrics helps an organization see exactly where it is performing well and where it is performing poorly.

Types of Quantitative Tools

Decision Tree

A decision tree is a branching graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. Decision trees are commonly used in operations research (specifically in decision analysis) to help identify a strategy most likely to reach a specified goal. They can also be used to map out a thought process or the possible consequences of a decision. A manager may use this tool when deciding between different projects or investments.

Decision tree

Decision trees are used to determine the consequences and potential outcomes of an investment or a project. This decision tree shows the money lost or gained at each step along multiple potential paths of action. The path that results in the highest financial gain by the end is generally the one that should be chosen.

Simulation

Simulation is the imitation of a real-world process or system over time. The act of simulating something first requires that a model be developed; this model represents the key characteristics or behaviors of the selected physical or abstract system or process. A simulation could be used to study investment decisions by actively playing out what may happen in certain situations.

Trend Chart

Trend charts are often used to display data over time to explore any potential trends (either positive or negative) that require additional attention by management. Many metrics are analyzed using trend charts, including employee productivity, financial metrics, operational efficiency, and comparisons between competitors. Trends are only ever in the past, however, and utilizing confidence intervals when projected with trends is critical to their effectiveness.

Trend chart

A trend chart shows changes in spending, prices, efficiency, or any other metric that management is interested in analyzing over time. This chart of U.S. defense spending from 2000–2011 shows that overall spending increased from $300 billion to $700 billion due to increases in both the Department of Defense (DOD) budget and overseas (war-related) spending.

Benchmarking

Benchmarking allows a manager to see how different aspects of a business (usually quality, time, and cost) are performing compared to national, regional, and industry standards. It also allows a manager to explore how the company is performing compared to competitors. In the process of benchmarking, management identifies the best firms in the industry, or in another industry where similar processes exist, and compares the results and processes of the target firms to management’s own results and processes. In this way, management learns how well the targets perform and, more importantly, the business processes that explain why these firms are successful.

Financial Projections

Managers can also use financial analysis as a management tool. When investing in a project or an acquisition of any kind, a manager will always want to know how quickly the investment will bring in a profit. For example, when a company invests in a new building, management will calculate how long it will take for the building to generate enough income to cover the upfront cost of the building and therefore start bringing in profits. This calculation is sometimes called a payback period. Payback period intuitively measures how long something takes to pay for itself. All else being equal, shorter payback periods are preferable to longer payback periods. This is often referred to as an NPV, or a net present value, where the company calculates the future value of the project in today’s dollars. It is critical to remember that a dollar today and a dollar tomorrow have a different value.

3.4.2: Operations-Management Tools

Six Sigma and Lean are two popular operations-management theories that help managers improve the efficiency of their production processes.

Learning Objective

Give examples of operations management tools that assist the organization in overseeing, designing and controlling production processes

Key Points

• The main tools of operations management come from two popular theories of organizing business: Six Sigma and Lean.
• Six Sigma relies on particular quality-management methods, such as statistical analytics, and creates a special infrastructure of employees within an organization (e.g., “Black Belts,” “Green Belts”) who are experts in these methods.
• Lean is a production theory that considers the expenditure of resources for any goal other than the creation of value for customers wasteful, and thus a good target for elimination.
• By leveraging operational paradigms constructed to deliberately capture value through maximizing efficiency, managers can lower costs for companies and prices for consumers.

Key Terms

Lean

Lean is a production strategy focused on eliminating all unnecessary waste in production.

Six Sigma

A process-improvement method that focuses on statistical methods to reduce the number of defects in a process.

Operations management is a type of management that oversees, designs, and controls a company’s production processes. This type of management is also tasked with redesigning business operations in the production of goods and/or services, if that is necessary. Operations managers are responsible for ensuring that business operations are efficient, both in terms of conserving resources and in terms of meeting customer requirements. They manage the process that converts inputs (materials, labor, and energy) into outputs (goods and services). In order to accomplish this task, managers utilize various tools, two of the most influential being Six Sigma and Lean.

Six Sigma

Six Sigma is a strategy designed to improve the quality of process outputs. The Six Sigma program accomplishes this by identifying and removing the causes of defects (errors) and by minimizing the variability present in manufacturing and business processes.

This strategy relies on particular quality-management methods, such as statistical analytics, and creates a special infrastructure of employees within an organization (e.g., “Black Belts,” “Green Belts”) who are experts in these methods. Each Six Sigma project in an organization follows a defined sequence of steps and has quantified financial targets such as reducing costs or increasing profits. Among the tools used in Six Sigma are process mapping, trending charts, calculations of potential defects, ratios, and statistics. Best practices for work within a team are also used.

Six Sigma

Six Sigma is a tool used by many managers when determining how to reduce the number of defects created by their processes.

Lean

Lean is similar to Six Sigma, but is slightly less focused on defect rate and more focused on eliminating the amount of waste and excessive steps in an operation. Lean is a production theory that considers the expenditure of resources for any goal other than the creation of value for the customer wasteful, and thus a target for elimination. Beginning from the perspective of the consumer of a product or service, “value” is defined as any action or process that a customer would be willing to pay for. Lean employs tools to evaluate production workflow and determine where there is waste. Examples of this waste would be excess motion, inventory, and overproduction.

Examples of Six Sigma and Lean

In many ways, Lean manufacturing and Six Sigma is reminiscent of Henry Ford and systematic process improvements. The overarching theme is simply to minimize time expenditures on behalf of employees and maximize output with the same amount of input. Toyota (and the concept of kaizen) is a fantastic example of Lean manufacturing and what is called just-in-time (JIT) inventory management. Toyota became famous in manufacturing for timing every specific element of the manufacturing process to ensure that minimal warehousing was required, delivering each new add-on component at precisely the time it would be needed and in exactly the location it would be installed. This created a process flow that minimized space usage (lowering costs), optimized timing, and created widespread consistency of operational flow.

Lean and Six Sigma are the two main tools for managers in operations management. Both of these operational strategies offer managers an extensive toolbox with which to analyze how efficiently their production is running. These tools analyze workflow, evaluate the presence and cause of waste, and decrease defects in products or services, all of which make a company more efficient.

3.4.3: The Systems Viewpoint

Systems thinking is an approach to problem solving that considers the overall system instead of focusing on specific parts of a system.

Learning Objective

Define the systems view as it applies to business strategies and overall organizational control

Key Points

• Systems thinking is an approach to problem solving that views problems as part of an overall system. This is opposed to problem-solving strategies that only focus on specific parts or outcomes of a problem.
• Systems thinking approaches problems as a set of habits or practices within a framework. It is based on the belief that the component parts of a system are best understood in the context of their relationships with each other rather than in isolation.
• Systems thinking is opposed to fragmented thinking, which involves thinking about specific problems without considering the context, environment, and effects of similar problems.

Key Term

fragmented thinking

Thinking about problems as isolated events instead of considering problems as resulting from a system as a whole.

Systems thinking is the process of understanding how people and situations influence one another within a closed system. In nature, air, water, movement, plants, and animals interact with one another and survive or perish in relationship with each other. In business, management also involves systems thinking.

Organizational Systems

Organizational systems consist of people, structures, and processes working together to make an organization healthy or unhealthy. The end product of effective systems management is synergy, in which the end product has more value than the individual sum of its parts. Systems generally contain the following aspects:

• Inputs (e.g., people, time, energy, information)
• Processes or reactions (e.g., tools, software, analyses)
• Outputs (e.g., products, reports, plans)
• Feedback mechanisms (e.g., information, reports)

Problem Solving

When problem-solving, advocates of systems thinking must consider specific problems within an overall system rather than reacting to specific issues or specific outcomes. In systems thinking, problems are conceptualized as a set of habits or practices that exist within a framework. Practitioners of systems thinking believe that the component parts of a system can best be understood, and best analyzed, in the context of their relationships with other parts of a system .

Systems thinking

Focus on the interaction of isolated problems with one another: just as separate gears work with each other, problems in one area can effect other areas in a system as well.

This method is opposed to a reductive framework that attempts to focus closely on a single problem. In this type of fragmented thinking, problems are addressed without considering the context, environment, or the impact of similar problems. Fragmented thinking often results in solutions that cannot be applied to multiple situations and are unlikely to remain relevant over time. This means management will be putting out more fires because the root problem is unresolved.

Here is an example of systems thinking: say that a single department, Human Resources, is beset with problems in workflow and efficiency. A manager who uses systems thinking to fix this problem looks at Human Resources in the context of all of the workflow in the company to see whether the “Human Resources problem” could actually be a company-wide issue. Only a systems-thinking approach can lead to this realization because systems thinking provides insight into how problems that manifest in a specific location can spring from distant, seemingly unrelated locations. This helps managers get an accurate understanding of the problem and facilitates a superior response to the problem.

Example

Here is an example of systems thinking: say that a single department, Human Resources, is beset with problems in workflow and efficiency. A manager who uses systems thinking to fix this problem looks at Human Resources in the context of all of the workflow in the company to see whether the “Human Resources problem” could actually be a company-wide issue. Only a systems-thinking approach can lead to this realization because systems thinking provides insight into how problems that manifest in a specific location can spring from distant, seemingly unrelated locations. This helps managers get an accurate understanding of the problem and facilitates a superior response to the problem.

3.4.4: The Contingency Viewpoint

The contingency viewpoint of management proposes that there is no standard for management; instead, management depends on the situation.

Learning Objective

Recognize the potential flexibility and value that can be captured through considering contingencies and alternatives from a managerial perspective

Key Points

• The contingency viewpoint is a more recent development in organizational theory that attempts to integrate a variety of management approaches, proposing that there is no one best way to organize a corporation or lead a company.
• Debating which one of the previous approaches to management is the “best” approach is irrelevant in contingency theory, since the heart of the contingency approach is that there is no “one best way” for managing and leading an organization.
• The contingency viewpoint focuses on management’s ability to achieve alignments and good fits between employees and circumstances by considering multiple solutions to determine the best one for each particular problem.
• The focal point, and modern relevance, of this perspective is the concept of adaptability. Technology and globalization evolve the business environment so rapidly that adaptable strategies are more appropriate than static ones, making contingencies key to success.

Key Term

Contingency Viewpoint

A theory of management that proposes that there is no standard for management practice, instead it should depend on the situation.

The contingency viewpoint is a more recent development of organizational theory that attempts to integrate a variety of management approaches by proposing that there is no one best way to organize a corporation or lead a company. Instead, the optimal course of action is contingent or dependent upon the specific internal and external situation management may find itself in.

Perspective on Previous Theories

The contingency approach claims that past theories, such as Max Weber’s bureaucracy theory of management and Taylor’s scientific management, are no longer practiced because they fail to recognize that management style and organizational structure are influenced by various aspects of the environment, known as contingency factors. Debating which one of the previous approaches to management is the “best” approach is irrelevant in contingency theory, since the heart of the contingency approach is that there is no “one best way” for managing and leading an organization.

Possibilities

The basic premise behind contingency theory is that there are limitless possibilities that companies must be prepared to adapt to strategically.

An Outline of Contingency Theory

By its nature, contingency theory avoids static rules. There are, however, common contingencies that businesses must react to, including technology, competition, governments, unions, consumer interest groups, new markets and consumers, and economic factors. Fred Fiedler takes this a step further to identify three leadership styles and empirical situation measurements to assess the degree of favorability a given contingency offers:

1. The leader-member relationship, which is the most important variable in determining the situation’s favorableness.
2. The degree of task structure, which is the second most important input into the favorableness of the situation.
3. The leader’s position power obtained through formal authority: this is the third most important dimension of the situation.

In other words, leadership needs to ensure that it is able to assess a situation, determine the task structure, and obtain a position of formal authority in order to be able to adequately manage a contingency situation.

An example of the contingency viewpoint in action is a manager facing a situation with an employee who regularly shows up late to work. A manager could have a written protocol for this situation in which there is only one option: give the employee notice. Under the contingency viewpoint, however, the manager may decide to better understand the situation by talking to the employee about why s/he is late to work and then deciding on the most effective and appropriate course of action. The value in this lies in the information the manager acquires about the employee: maybe there are extenuating circumstances that can be relatively easy to work around. In this case, the contingency approach allows the employee to keep her/his job and saves the manager from going through the time and trouble to dismiss one employee and hire another.

A leader’s ability to manage under the contingency viewpoint depends largely on the nature of the environment and how the organization relates to the environment. Therefore, the organizational structure is a major component of the approach that management may take in resolving problems under contingency theory.

3.4.5: Quality Control and Assurance

Quality assurance and quality control are intended to ensure that products are created with the fewest number of defects possible.

Learning Objective

Discuss quality control (QC) and quality assurance (QA) as integral components of an effective organizational management structure

Key Points

• Quality assurance (QA) refers to planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service.
• Quality control (QC) is a process by which products are tested to uncover defects and the results are reported to management, which makes the decision to allow or deny product release.
• Quality control and quality assurance work together to make sure that a company’s products have the lowest possible error rate.
• As global markets expand, and as outsourcing becomes common practice, QC and QA are increasingly important strategic initiatives. When companies do not control their manufacturing process, they must invest in controlling the quality of their vendors.

Key Term

Failure testing

Failure testing involves determining the point of stress level in which a product will fail.

Quality assurance and quality control are two methods of planning and implementing structured methods in a work process to ensure that products are created with the highest possible quality and with the smallest number of defects and problems.

Quality Assurance

Quality assurance (QA) refers to the planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service It is a systematic measurement compared to a set standard, with process monitoring used to prevent errors. This can be contrasted with quality control, which is focused on process outputs. Two key principles of QA are:

• Fit for purpose: The product should be suitable for its intended purpose.
• Right the first time: Mistakes should be eliminated.

QA includes managing the quality of raw materials, assemblies, products, components, services related to production, management processes, production processes, and inspection processes. The critical takeaway here is that QA equates to process observations.

Quality assurance is measured through failure testing and statistical control. Failure testing determines the stress levels under which a product will fail by exposing it to unanticipated stresses, like intense vibration, temperature, and humidity. Stress testing uncovers problems that can be fixed with simple changes to improve the product. Statistical controls ensure that an organization is producing quality products at the lowest possible defect rate. Many organizations use Six Sigma levels of quality, so the likelihood of an unexpected failure is less than four in one million.

Assembly line and quality control

Many processes, such as assembly lines, help ensure quality assurance and control by streamlining the production process.

Quality Control

Quality control (QC) is the process of testing finished products to uncover defects and reporting the results to management, which makes the decision to allow or deny product release. It differs from quality assurance, which attempts to improve and stabilize a product, and eliminate any flaws, during production.

Controls also include product inspection: every product is examined visually before the product is sold into the external market. Inspectors are provided with lists and descriptions of unacceptable product defects, such as cracks or surface blemishes. Efficient quality control depends on top-notch visual examination of products, employee training, and organizational culture.

Quality control and quality assurance work together to make sure that companies produce products that have the lowest possible error rate, so there will be fewer customer complaints and no need to rework the product in the future.

Outsourcing

Due to the high degree of vendor dependency, many corporations find their manufacturing processes are conducted outside of their organization. This can lead to difficulties in maintaining process quality. In this situation, a corporation needs to invest in QC professionals to maintain organizational standards. The primary takeaway here is that QC is not simply an internal concern for many businesses, but also an external vendor selection criteria.

3.4.6: Evidence-Based Management

Evidence-based management emphasizes the importance of managers using the scientific method to make decisions.

Learning Objective

Discuss the modern organizational theory perspective on utilizing evidence-based strategies, as is common in many science disciplines, to make business decisions

Key Points

• Evidence-based management is rooted in evidence-based medicine, a movement to apply the scientific method to medical practice. Evidence-based management is an emerging movement to explicitly use current best practices in managerial decision-making.
• Evidence-based management bases managerial decisions and organizational practices on the best available scientific evidence.
• While there is a rich body of academic literature pertaining to tried-and-true managerial strategies, real-world application of such resources is relatively rare.
• Promoting evidence-based management is challenging because it can conflict with traditional definitions and expectations of management.
• Little shared terminology exists between managers of different companies, which makes it difficult for managers to hold discussions on evidence-based practices. The adoption of evidence-based practices is likely to be organization-specific instead of happening across organizations.

Key Term

terminology

The set of terms actually used in any business, art, science, or the like; nomenclature; technical terms; such as, the terminology of chemistry.

Evidence-based management (EBMgt or EBM) is an emerging movement that explicitly uses current best practices in managerial decision-making. Evidence-based management is rooted in evidence-based medicine, which is the rigorous statistical and experimental process that new pharmaceuticals go through prior to being deemed safe to use. This results in treatments that are the maximally effective and safe for patients. Applying this to business simply means utilizing the scientific method, which integrates rigorous and objective hypothesis testing, in order to identify best practices.

Research and Evidence-Based Management

Evidence-Based Management is modeled after Evidence-Based Medicine, which emphasizes the importance of scientific research in decision-making.

The Scientific Method

Evidence-based management bases managerial decisions and organizational practices on the best available scientific evidence. Practicing EBMgt requires managers to collect data, run tests, generate hypotheses, and objectively interpret the findings to create an accurate depiction of the efficacy of a given managerial style or decision. This is quite challenging, because management is much less tangible and measurable than many other scientific disciplines.

An example of EBMgt in practice could be a group of managers in an organization trying to determine how to improve job satisfaction. They could conduct a comprehensive and objective (therefore blind) survey across a large number of organizations, collecting enough data on the organizational reimbursements for employees, employee satisfaction, and company cultures to determine if a positive company culture is more relevant than salary to job satisfaction. After collecting n number of responses, this data could be assessed statically for a confidence interval, revealing the conclusion to be either significant or insignificant to future management decisions.

Integration with Organizations

While there is a rich body of academic literature pertaining to tested and true managerial strategies, real-world application of such resources is relatively rare. MBAs and degree holders in business have some exposure to this literature, but rarely move it from the theoretical realm to actual practice. Motivating real-life applications of these studies for management could prove advantageous for companies looking to improve their managerial effectiveness.

An important component of evidence-based management is helping managers understand the importance of backing up decisions with sound scientific reasoning. Unfortunately little shared language or terminology exists between managers, which makes it difficult for managers to hold discussions of evidence-based practices. For this reason, the adoption of evidence-based practices is likely to be organization-specific, where leaders take the initiative to build an evidence-based internal culture.

3.5: Evolving Organizations

3.5.1: Knowledge Management and Behavior Modification

Knowledge management and behavior modification are tactics employers use to ensure organizational growth and adaptability.

Learning Objective

Compare and contrast the acquisition of knowledge and the modification of behavior as internally evolving organizational components

Key Points

• Knowledge management is an organizational concept that takes the best knowledge from individual employees and organizes it into a functional learning and education system that all employees can learn from.
• Knowledge management is usually implemented by a company’s information technology department via electronic collection of specific components of employee expertise, creation of online learning modules, and redistribution of the modules to the whole company.
• Behavioral modification includes the alteration of an individual’s behavior through data collection and positive/negative reinforcement.
• In an organization, behavior modification is typically studied to examine how employees perceive their performance in relation to rewards. At a high level, it is used to develop strategies for improving performance behavior.

Key Term

Knowledge management

Used in organizations to collect employee’s specialized knowledge and organize, redistribute, and share with the company.

Knowledge management (KM), and the modification of behavior through utilizing organizational knowledge, is central to an organization’s ability to grow and adapt. The value of knowledge management from the perspective of the organization is its ability to help employees learn and improve their skills, allowing the organization itself to evolve and achieve higher efficiency. Knowledge is an intangible resource which organizations can concretize by documenting experience over time. This helps them to avoid repeating mistakes and to improve current strategies.

Knowledge Management

Knowledge management is the range of strategies and practices used by an organization to identify, create, represent, distribute, and enable the adoption of employee insights and experiences. These insights and experiences constitute the company’s “knowledge,” either embodied in individuals or embedded in organizations as processes or practices. KM includes courses taught in the fields of business administration, information systems, management, and library and information sciences.

More recently, other fields have started contributing to KM research, including information and media, computer science, public health, and public policy. Knowledge management also focuses on organizational objectives such as improved performance, competitive advantage, innovation, and continuous improvement. KM is similar to organizational learning but distinguishes itself because it focuses more on knowledge as a strategic asset of a company’s employees. It encourages the sharing of knowledge to further the company’s success.

Many organizations include resources dedicated to internal knowledge management efforts in their business strategy, information technology, or human resource management departments. Consulting companies are also sometimes hired to provide advice about knowledge management. Knowledge management in a company is sometimes seen as an organizational concept that takes the best knowledge from individual employees and organizes it into functional learning and education systems that all employees can learn from. The company’s information technology department can make this happen by electronically collecting specific components of an employee’s knowledge expertise, creating an online learning module, and redistributing it to the company.

For example, an employee who is particularly knowledgeable about a certain computer system. This employee may be asked to write a training manual or presentation about this computer system which is then distributed to the company so that others can also benefit from that individual’s knowledge. Knowledge-sharing is the most important component of knowledge management and is essential to helping an organization evolve and grow.

Behavior Modification

Behavior modification was first introduced in psychology as a collection of behavioral change techniques to increase or decrease the frequency of behaviors. In psychology, behavioral modification was made popular by B. F. Skinner, who analyzed the triggers and rewards for certain behaviors in a series of experiments with animals. Behavioral modification includes altering an individual’s behavior through positive and negative reinforcement.

B.F. Skinner

B.F. Skinner introduced the study of behavior modification, focusing on how animals and humans react to reward and punishment. His theories are still used in behavior modification today.

Behavior modification in an organization is typically studied to examine how employees perceive their performance in relation to rewards. The process of behavioral modification in the workplace focuses on identifying the frequency of certain performance-related behavior, as well as determining what started or triggered that specific behavior. Once the trigger is identified, management can determine if it wants to develop a different trigger to change the employee’s performance or if it should sustain the current performance through rewards and appraisal.

Behavioral modification is generally used on a broader scale to determine how best to develop employee performance to move an organization in the desired direction. Knowledge management can help with this by providing employees with adequate training and skills and making sure that they know that they are valuable members of the organization worth investing in and empowering. Training employees and improving their knowledge, skills, and behavioral approaches to work helps an organization to evolve and improve.

Example

An example of knowledge management would involve an employee who is particularly knowledgeable about a certain computer system. This employee may be asked to write a training manual or presentation about this computer system, which is then distributed to the company so that others can also benefit from that individual’s knowledge.

3.5.2: Accelerated Change and Adaptation

Change management facilitates employee adaptation to organizational change.

Learning Objective

Identify the role of change management with the larger context of organizational theory

Key Points

• Change is essential to organizational growth and development. But employees can be uncomfortable with change, particularly when it affects their work on a daily basis.
• Sometimes an organization faces accelerated change, from attempts to change its overall mission, for example, or to implement a disruptive technology. In this situation it is important for employees to be able to adapt quickly.
• Quick adaptation to change is facilitated through change management strategies such as communication, employee alignment with expectations, training, and transparency of management.

Key Term

change management

Change management attempts to use strategies such as communication and training to help employees become more comfortable with organizational changes.

Managing Change and Adaptation

Change is essential to organizational growth and development. But employees don’t always embrace change, particularly when it upsets routines and/or the status quo. Employees can view change as a threat if it impacts their daily tasks, training, or possibly their job. Change management is an approach to shifting and transitioning individuals, teams, and organizations from a current state to a desired future state. It is an organizational process aimed at helping change stakeholders to accept and embrace changes in their business environment.

Drivers of rapid adaptation are numerous, but one of the most relevant to modern organizations is the advent of new technology. When the smartphone was introduced and became popular, all companies in the phone industry had to react rapidly to switch their operational focus to smart phones, data plans, app stores, and multiple device integration. Companies that could not react and adapt quickly enough to the disruptive technology were left in the dust.

Sometimes an organization faces accelerated change when it is attempting to change its overall mission and refocus its vision. In the recent recession, this occurred within a number of organizations that thought that the best way to survive was to re-brand or reorganize their business strategy as a whole. Changing a company’s brand or overarching strategy (i.e., differentiation to low-cost or vice versa) is a massive overhaul that will undoubtedly upset a number of people internally and externally. Responsible change is a complex process.

Organizational Change and Employees

Major changes to an organization will force employees to adapt. Employees may not approve of the change, but they will be required to adapt to it if they want to keep their jobs. This is likely to create tension between what the employees want and what is occurring in the organization. Change management helps employees adapt to accelerated organizational change by attempting to eliminate the tension between employees’ resistance to and suspicions about change and the organization’s new direction.

Change management uses basic structure and tools to control an organizational change effort; these primarily revolve around ensuring that all stakeholders are aware of what’s going on and involving them in the strategic process. Managerial transparency about what is happening and why is critical to employee buy-in. Communicating effectively and comprehensively and hearing out employee fears, criticisms, and suggestions are integral to ensuring that everyone is on the same page. When changing the organization is required to remain profitable, employees will understand that they must pitch in to maintain the relevancy of their job.

3.5.3: The Role of the Manager in an Evolving Organization

Managers play a number of roles in evolving organizations, including leader, negotiator, figurehead, liaison, and communicator.

Learning Objective

Break down the various and critical roles a leader must play in the transitional process from an organization perspective

Key Points

• A manager needs to be a good leader. While a manager organizes and plans, s/he must also inspire employees with a vision for the organization.
• A manager needs to be an effective negotiator. When organizations are developing or undergoing change, the manager is often required to negotiate with competitors, contractors, suppliers, and employees.
• A manager must be a good figurehead who reinforces the mission and vision of an organization to employees, customers, and other stakeholders.
• A manager needs to be an effective communicator and liaison between employees, customers, and other managers of the organization.

Key Term

leader

A leader is thought to differ from a manager in that a leader’s intention is to inspire and motivate while a manager’s role is focused more on organization and planning.

Managers play an integral part in an organization’s growth and evolution. Organizational growth is a complex process, particularly in larger organizations with more inertia. Organizations are essentially a compilation of moving parts: motivating each individual, with her/his unique talents and motivation, to change direction simultaneously (and in the same direction) is extremely challenging, and requires highly effective managers with highly developed communication skills.

Managers must do more than accept change: they must facilitate the evolutionary process. In these situations, organizations need a manager who can fulfill several roles, including leader, negotiator, figurehead, and communicator. In each of these roles, the manager’s goal is to help employees through the change with the least possible number of conflicts and issues.

The Role of a Manager during Organizational Change

Leader

To effectively implement change, a manager needs to be a good leader. The manager must organize and plan the change and use leadership skills to inspire employees to embrace it. This is a complex and intangible skill, one which incorporates each of the roles listed below as well. Leadership is a broad term that incorporates communicating and inspiring those around you to embrace a perspective.

Negotiator

A negotiator is similar to a leader. When organizations are developing or undergoing change, the manager is often required to negotiate clearly and steadfastly with competitors, contractors, suppliers, and employees. A manager needs to be able to negotiate with all of these parties in a way that effectively serves the best interests of the organization.

Figurehead

A manager also needs to act as a figurehead of the organization. Upper management in particular is responsible for creating and reinforcing delivery of the mission and vision of an organization to employees, customers, and other stakeholders. Employees in particular must understand where the organization is headed and what its ultimate goals are. A manager-figurehead can come to symbolize the organization as a whole for customers. The manager who builds a positive rapport with both customers and employees creates a positive association of her/himself with the organization at large.

Liaison and Communicator

When managers effectively communicate their vision for the organization, employees are more likely to engage with their work and exert themselves to further the organizational mission. Communication is at the core of managing change effectively. Transparency and empathy are integral to making employees aware of and comfortable with the changes taking place. Managers in an evolving organization must stay in constant contact with their direct reports to ensure that everything is running smoothly and that all stakeholders are educated and on board.

2.3: Common Organizational Structures

2.3.1: Functional Structure

Learning Objective

Explain the functional structure within the larger context of organizational structures in general

Key Points

• A functional organization is a common type of organizational structure in which the organization is divided into smaller groups based on specialized functional areas, such as IT, finance, or marketing.
• Functional departmentalization arguably allows for greater operational efficiency because employees with shared skills and knowledge are grouped together by function.
• A disadvantage of this type of structure is that the different functional groups may not communicate with one another, potentially decreasing flexibility and innovation. A recent trend aimed at combating this disadvantage is the use of teams that cross traditional departmental lines.

Key Terms

departmentalization

The organization of something into groups according to function, geographic location, etc.

silo

In business, a unit or department within which communication and collaboration occurs vertically, with limited cooperation outside the unit.

Overview of the Functional Structure

An organization can be arranged according to a variety of structures, which determine how the organization will operate and perform. In a functional structure, a common configuration, an organization is divided into smaller groups by areas of specialty (such as IT, finance, operations, and marketing). Some refer to these functional areas as “silos”—entities that are vertical and disconnected from each other. Correspondingly, the company’s top management team typically consists of several functional heads (such as the chief financial officer and the chief operating officer). Communication generally occurs within each functional department and is transmitted across departments through the department heads.

Functional structure at FedEx

This organizational chart shows a broad functional structure at FedEx. Each different functions (e.g., HR, finance, marketing) is managed from the top down via functional heads (the CFO, the CIO, various VPs, etc.).

Advantages of a Functional Structure

Functional departments arguably permit greater operational efficiency because employees with shared skills and knowledge are grouped together by functions performed. Each group of specialists can therefore operate independently with management acting as the point of cross-communication between functional areas. This arrangement allows for increased specialization.

Disadvantages of a Functional Structure

A disadvantage of this structure is that the different functional groups may not communicate with one another, potentially decreasing flexibility and innovation. Functional structures may also be susceptible to tunnel vision, with each function perceiving the organization only from within the frame of its own operation. Recent trends that aim to combat these disadvantages include the use of teams that cross traditional departmental lines and the promotion of cross-functional communication.

Functional structures appear in a variety of organizations across many industries. They may be most effective within large corporations that produce relatively homogeneous goods. Smaller companies that require more adaptability and creativity may feel confined by the communicative and creative silos functional structures tend to produce.

2.3.2: Divisional Structure

Learning Objective

Describe the basic premise behind divisional structures within the general framework of organizational structure

Key Points

• The divisional structure is a type of organizational structure that groups each organizational function into a division. These divisions can correspond to either products or geographies.
• Each division contains all the necessary resources and functions within it to support that product line or geography (for example, its own finance, IT, and marketing departments).
• A multidivisional form (or “M-form”) is a legal structure in which one parent company owns subsidiary companies, each of which uses the parent company’s brand and name.
• The divisional structure is useful because failure of one division doesn’t directly threaten the other divisions. In the multidivisional structure, the subsidiaries benefit from the use of the brand and capital of the parent company.
• Disadvantages of divisional structure can include operational inefficiencies from separating specialized function. For the multidivisional structure, disadvantages can include increased accounting and taxes.

Key Terms

subsidiary

A company owned by a parent company or holding company.

division

A section of a large company.

parent company

An entity that owns or controls another entity.

Divisional Structure Overview

Organizations can be structured in various ways, with each structure determining the manner in which the organization operates and performs. A divisional organization groups each organizational function into a division.

U.S. Department of Energy organization chart

The DOE organization chart shows a divisional structure with different divisions under each of three under-secretaries for energy. Each of the three division is in charge of a different set of tasks: environmental responsibilities, nuclear-energy responsibilities, or research responsibilities.

Divisional Strategies

Each division within this structure can correspond to either products or geographies of the organization. Each division contains all the necessary resources and functions within it to support that particular product line or geography (for example, its own finance, IT, and marketing departments). Product and geographic divisional structures may be characterized as follows:

• Product departmentalization: A divisional structure organized by product departmentalization means that the various activities related to the product or service are under the authority of one manager. If the division builds luxury sedans or SUVs, for example, the SUV division will have its own sales, engineering, and marketing departments distinct from those departments within the luxury sedan division.
• Geographic departmentalization: Geographic departmentalization involves grouping activities based on geography, such as an Asia/Pacific or Latin American division. Geographic departmentalization is particularly important if tastes and brand responses differ across regions, as it allows for flexibility in product offerings and marketing strategies (an approach known as localization).

A common legal structure known as the multidivisional form (or “M-form”) also uses the divisional structure. In this form, one parent company owns subsidiary companies, each of which uses its brand and name. The whole organization is ultimately controlled by central management; however, most decisions are left to autonomous divisions. This business structure is typically found in companies that operate worldwide—for example, Virgin Group is the parent company of Virgin Mobile and Virgin Records.

Advantages of a Divisional Structure

As with all organizational structure types, the divisional structure offers distinct advantages and disadvantages. Generally speaking, divisions work best for companies with wide variance in product offerings or regions of geographic operation. The divisional structure can be useful because it affords the company greater operational flexibility. In addition, the failure of one division does not directly threaten the other divisions. In the multidivisional structure, subsidiaries benefit from the use of the brand and capital of the parent company.

Disadvantages of a Divisional Structure

Some disadvantages of this structure include operational inefficiencies from separating specialized functions—for example, finance personnel in one division do not communicate with those in another division. Disadvantages of the multidivisional structure can include increased accounting and tax implications.

2.3.3: Matrix Structure

Learning Objective

Illustrate the way two different operational perspectives can be crossed in a matrix structure to organize a company

Key Points

• The matrix structure is a type of organizational structure in which individuals are grouped simultaneously by two different operational perspectives.
• Matrix structures are inherently complex and versatile, making them more appropriate for large companies operating across different industries or geographic regions.
• Proponents suggest that matrix management is more dynamic than functional management in that it allows team members to share information more readily across task boundaries; it also allows for specialization that can increase depth of knowledge.
• A disadvantage of the matrix structure is the increased complexity in the chain of command, which can lead to a higher manager-to-worker ratio and contribute to conflicting loyalties among employees.

Key Term

matrix

A two-dimensional array.

Overview of the Matrix Structure

Organizations can be structured in various ways, and the structure of an organization determines how it operates and performs. The matrix structure is a type of organizational structure in which individuals are grouped by two different operational perspectives simultaneously; this structure has both advantages and disadvantages but is generally best employed by companies large enough to justify the increased complexity.

Matrix organizational structure

In a matrix structure, the organization is grouped by both product and function. Product lines are managed horizontally and functions are managed vertically. This means that each function—e.g., research, production, sales, and finance—has separate internal divisions for each product.

In matrix management, the organization is grouped by any two perspectives the company deems most appropriate. Common organizational perspectives include function and product, function and region, or region and product. In an organization grouped by function and product, for example, each product line will have management that corresponds to each function. If the organization has three functions and three products, the matrix structure will have nine (
) potential managerial interactions. This example illustrates how inherently complex matrix structures are in comparison to other, more linear structures.

Advantages of a Matrix Structure

Proponents of matrix management suggest that this structure allows team members to share information more readily across task boundaries, countering the “silo” critique of functional management. Matrix structures also allow for specialization that can both increase depth of knowledge and assign individuals according to project needs.

Disadvantages of a Matrix Structure

A disadvantage of the matrix structure is the increased complexity in the chain of command when employees are assigned to both functional and project managers. This increase in complexity can result in a higher manager-to-worker ratio, which can in turn increase costs or lead to conflicting employee loyalties. It can also create a gridlock in decision making if a manager on one end of the matrix disagrees with another manager. Blurred authority in a matrix structure can result in reduced agility in decision making and conflict resolution.

Matrix structures should generally only be used when the operational complexity of the organization demands it. A company that operates in various regions with various products may require interaction between product development teams and geographic marketing specialists—suggesting a matrix may be applicable. Generally speaking, larger companies with a need for a great deal of cross-departmental communication benefit most from this model.

2.3.4: Team-Based Structure

Learning Objective

Classify team-based structures within the larger context of the most common organizational structures

Key Points

• The team structure in large organizations is a newer type of organizational structure. A team should be a group of workers, with complementary skills and synergistic efforts, all working toward a common goal.
• An organization may have several teams that can change over time. Teams that include members from different functions are known as cross-functional teams.
• Although teams are characterized as less hierarchical, they typically still include a management structure (or management team).
• Critics argue that the use of the word “team” to describe modern organizational structures is a fad—that some teams are not really teams at all but merely groups of staff.
• One aspect of team-based structures likely to persist indefinitely is the integration of team cultures within an broader structure (such as a functional structure with interspersed teams).

Key Terms

hierarchical

Classified or arranged according to various criteria into successive ranks or grades.

synergistic

Cooperative, working together, interacting, mutually stimulating.

Overview of the Team-Based Structure

Organizations can be structured in various ways, and the structure of an organization determines how it operates and performs. The team structure in large organizations is considered a newer type of organization that is less hierarchical, less structured, and more fluid than traditional structures (such as functional or divisional). A team is a group of employees—ideally with complementary skills and synergistic efforts—working toward a common goal. Teams are created by grouping employees in a way that generates a variety of expertise and addresses a specific operational component of an organization. These teams can change and adapt to fulfill group and organizational objectives.

Some teams endure over time, while others—such as project teams—are disbanded at the project’s end. Teams that include members from different functions are known as cross-functional teams. Although teams are described as less hierarchical, they typically still include a management structure.

Critics argue that the use of the word “team” to describe modern organizational structures is a fad; according to them, some teams are not really teams at all but rather groups of staff. That said, team-building is now a frequent practice of many organizations and can include activities such as bonding exercises and even overnight retreats to foster team cohesion. To the extent that these exercises are meaningful to employees, they can be effective in improving employee motivation and company productivity.

Integration with Other Structures

One aspect of team-based structures that will likely persist indefinitely is the integration of team cultures within an broader structure (e.g., a functional structure with teams interspersed). Such integration allows for the authority and organization of a more concrete structure while at the same time capturing the cross-functional and projected-oriented advantages of teams.

For example, imagine Proctor and Gamble brings together a group of employees from finance, marketing, and research and development—all representing different geographic regions. This newly created team is tasked with the project of creating a laundry detergent that is convenient, economic, and aligned with the company’s manufacturing capabilities. The project team might be allocated a certain number of hours a month to devote to team objectives; however, members of the team are still expected to work within their respective functional departments.

2.3.5: Network Structure

Learning Objective

Identify the structural implications of a network-based organizational design

Key Points

• The network structure is a newer type of organizational structure viewed as less hierarchical (i.e., more “flat”), more decentralized, and more flexible than other structures.
• In a network structure, managers coordinate and control relationships that are both internal and external to the firm.
• The concept underlying the network structure is the social network—a social structure of interactions. Open communication and reliable partners (both internally and externally) are key components of social networks.
• Proponents argue that the network structure is more agile than other structures. Because it is decentralized, a network organization has fewer tiers, a wider span of control, and a bottom-up flow of decision making and ideas.
• A disadvantage of the network structure is that this more fluid structure can lead to more complex relations in the organization.

Key Terms

agile

Apt or ready to move; nimble; active.

decentralized

Diffuse; having no center or several centers.

network

Any interconnected group or system.

Overview of the Network Structure

An organization can be structured in various ways that determine how it operates and performs. The network structure is a newer type of organizational structure often viewed as less hierarchical (i.e., more flat), more decentralized, and more flexible than other structures. In this structure, managers coordinate and control relations that are both internal and external to the firm.

The concept underlying the network structure is the social network—a social structure of interactions. At the organizational level, social networks can include intra-organizational or inter-organizational ties representing either formal or informal relationships. At the industry level, complex networks can include technological and innovation networks that may span several geographic areas and organizations. From a management perspective, the network structure is unique among other organizational structures that focus on the internal dynamics within the firm.

A network organization sounds complex, but it is at its core a simple concept. Take, for example, a T-shirt design company. Because the company leaders are mainly interested in design, they may not want to get too heavily involved in either manufacturing or retail; however, both aspects of the business are necessary to complete their operations. To maintain control of their product, they may rent retail space through their network and purchase production capabilities from a variety of partner organizations that have their own manufacturing facilities. While the core company focuses mainly on designing products and tracking finances, this network of partnerships enables it to be much more than just a design operation.

Like other organizational structures, the network structure has its advantages and its disadvantages.

Advantages of a Network Structure

Proponents argue that the network structure is more agile compared to other structures (such as functional areas, divisions, or even some teams). Communication is less siloed and flows freely, possibly opening up more opportunities for innovation. Because the network structure is decentralized, it has fewer tiers in its organizational makeup, a wider span of control, and a bottom-up flow of decision making and ideas.

Disadvantages of a Network Structure

On the other hand, this more fluid structure can lead to a more complex set of relationships in the organization. For example, lines of accountability may be less clear, and reliance on external vendors can be quite high. These potentially unpredictable variables essentially reduce the core company’s control over its operational success.

2.3.6: Modular Structure

Learning Objective

Define the nature and value of a modular structure in an organizational framework

Key Points

• The modular structure divides the business into small, tightly knit strategic business units (SBUs),which focus on specific elements of the organizational process.
• Interdependencies between modules tends to be weak; however, flexibility is extremely high.
• An advantage of the modular structure is that loosely coupled structures enable organizations to be more flexible and restructure more easily. For example, a firm can switch between different providers and thus respond more quickly to different market needs.
• Increased internalization and more tightly coupled structures can produce better communication and intellectual property gains. As a result, some argue that the modularity of a firm should be limited to the extent the flexibility it affords results in gains.
• Various degrees of modularity are possible; however, a business must be consistent in the degree of modularity it employs.

Key Terms

modular

Consisting of separate units, especially where each unit performs a specified function and could be replaced by a similar unit for the same function, independently of other units.

disaggregation

A division or breaking up into constituent parts, particularly categories which have been lumped together.

Overview of the Modular Structure

Organizations can be structured in various ways that determine how the organization operates and performs. The modular structure focuses on dividing the business into small, tightly knit strategic business units (SBUs), which focus on specific elements of the organizational process. Interdependence among the units is limited because the focus of many SBUs is more inward than outward and because loyalty within SBUs tends to be very strong.

The term modularity is widely used in studies of technological and organizational systems. Product systems are deemed modular when they can be broken down into a number of components that can then be mixed and matched to connect, interact, or exchange resources. Modularization within organizations leads to the disaggregation of the traditional form of hierarchical governance into relatively small, autonomous organizational units (modules). Although modules are not generally interdependent, the modular organization is extremely flexible.

For example, a firm that employs contract manufacturing rather than in-house manufacturing is using an organizational component that is more independent. The firm can switch between different contract manufacturers that perform different functions; the contract manufacturer can similarly work for different firms. Another (more internally focused) modular model involves the existence of various consumer services which cater to dramatically different needs or demographics. At GNU Health, for example, the surgery unit may interact with different departments at different times for different reasons.

Modular organizations

A modular organization involves several largely independent bodies that can rearrange and work with different other departments as needed. This image shows the GNU health module interacting with many different departments, such as oncology, radiology, surgery and pediatrics, across many contexts, such as location and socioeconomic status.

Advantages of a Modular Structure

One advantage of the modular structure is that loosely coupled structures can enable organizations to be more flexible and restructure more easily. For example, a firm can switch between different providers and thus respond more quickly to different market needs. An organization can also fill its own corporate needs internally by creating a new modular department, which can operate interdependently with the whole.

Disadvantages of a Modular Structure

On the other hand, more internalization and more tightly coupled structures can produce better communication and intellectual property gains. As a result, critics of the modular organization argue that a firm’s modularity should be limited to the extent that its flexible nature affords gains. Various degrees of modularity are possible but not necessarily useful if the pros do not outweigh the cons. Managers must carefully consider whether or not a modular structure would be useful, either entirely or partially, for a given organization.

2.4: Factors to Consider in Organizational Design

2.4.1: Considering the Environment

Considerations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design.

Learning Objective

Identify the inherent complexities in the external environment that influence the design of an organization’s structure

Key Points

• Organizational design is dictated by a variety of factors, including the size of the company, the diversity of the organization’s operations, and the environment in which it operates.
• According to several theories, considerations of the external environment are a key aspect of organizational design. These considerations include how organizations cope with conditions of uncertainty, procure external resources, and compete with other organizations.
• A company in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. In contrast, a company in a mature market with limited variability and uncertainty should pursue more structure.
• A company with a low-cost strategy relative to its competition may benefit from a more simplistic and fixed structural approach to operations, while a company pursuing differentiation must prioritize flexibility and a more diversified structure.

Key Terms

differentiation

A strategy focused on creating a unique product for a particular population.

strategy

A plan of action intended to accomplish a specific goal.

Overview

Organizational design is dictated by a variety of factors, including the size of the company, the diversity of the organization’s operations, and the environment in which it operates. Considerations of the external environment are a key aspect of organizational design. The environment in which an organization operates can be defined from a number of different angles, each of which generates different structural and design strategies to remain competitive.

Complexity

Complexity theory postulates that organizations must adapt to uncertainty in their environments. The complexity theory treats organizations and firms as collections of strategies and structures that interact to achieve the highest efficiency within a given environment. Therefore, companies in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. Alternatively, a fixed and specific approach to organizational design will capture more value in a mature market, where variability and uncertainty are limited.

Resource Dependence

Another perspective on organizational design is resource dependence theory—the study of how external resources affect the behavior of the organization. Procuring external resources is important in both the strategic and tactical management of any company. Resource-dependence theory explores the implications regarding the optimal divisional structure of organizations, recruitment of board members and employees, production strategies, contract structure, external organizational links, and many other aspects of organizational strategy.

Competition

Another environmental factor that shapes organization design is competition. Higher levels of competition require different organizational structures to offset competitors’ advantages while emphasizing the company’s own strengths. A company that demonstrates strength in differentiation relative to the competition benefits from implementing a divisional or matrix strategy, which in turn allows the company to manage a wide variety of demographic-specific products or services. Alternatively, a company that demonstrates a low-cost strength (producing products cheaper than the competition) benefits from employing a structural or bureaucratic strategy to streamline operations.

Identifying External Factors

In considering organizational design relative to the environment, managers may find it helpful to employ two specific frameworks to identify external factors and internal strengths and weaknesses:

• SWOT analysis: In this particular model, a company’s strengths and weaknesses are assessed in the context of the opportunities and threats in the business environment. A SWOT analysis enables a company to identify the ideal structure to maximize its internal strengths while capturing external opportunities and avoiding threats.
• Porter’s five-forces analysis: This analysis identifies factors of the industry’s competitive environment that may substantially influence a company’s strategic design. The five forces include power of buyers, power of suppliers, rivalry (competition), substitutes, and barriers to entry (how difficult it is for new firms to enter the industry). Understanding these varying forces gives the company an idea of how adaptable or fixed the organizational structure should be to capture value.

Porter’s five-forces model

Porter’s five-forces analysis identifies five environmental factors that can influence a company’s strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry.

Smaller, more agile companies tend to thrive better in uncertain or constantly changing markets, while larger, more structured companies function best in consistent, predictable environments. Understanding these tools and frameworks alongside the varying external forces that act upon a business will allow companies to make strategic organizational decisions that optimize their competitive strength.

2.4.2: Considering Company Size

The size and operational scale of a company is important to consider when identifying the ideal organization structure.

Learning Objective

Explain how the size of a company helps determine the organizational structure that optimizes operational efficiency and managerial capacity

Key Points

• Company size plays a substantial role in determining the ideal structure of the company: the larger the company, the greater need for increased complexity and divisions to achieve synergy.
• Companies may adopt any of six organizational structures based on company size and diversity in scope of operations: pre-bureaucratic, bureaucratic, post-bureaucratic, functional, divisional, and matrix.
• Smaller companies function best with pre-bureaucratic or post-bureaucratic structures. Pre-bureaucratic structures are inherently adaptable and flexible and therefore particularly effective for small companies aspiring to expand.
• Larger companies usually achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations).
• Understanding the varying pros and cons of each structure will help companies to plan their organization design and structure in a way that optimizes resources and allows for growth.

Key Terms

economies of scope

Strategies of incorporating a wider variety of products or services to capture value through the ways in which they interact or overlap.

Homogeneous

Having a uniform makeup; having the same composition throughout.

economies of scale

Processes in which an increase in quantity will result in a decrease in average cost of production (per unit).

Company Size and Organizational Structure

Organizational design can be defined narrowly as the strategic process of shaping the organization’s structure and roles to create or optimize competitive capabilities in a given market. This definition underscores why it is important for companies to identify the factors of the organization that determine its ideal structure—most specifically the size, scope, and operational initiatives of the company.

Company size plays a particularly important role in determining an organization’s ideal structure: the larger the company, the greater the need for increased complexity and divisions to achieve synergy. The organizational structure should be designed in ways that specifically optimize the effort and input compared to output. Larger companies with a wider range of operational initiatives require careful structural considerations to achieve this optimization.

Types of Organizational Structure

Companies may adopt one of six organizational structures based upon company size and diversity of scope of operations.

Pre-bureaucratic

Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to optimize competitiveness.

Bureaucratic

A bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units.

Post-bureaucratic

This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations (such as nonprofits or community organizations) where the importance of the decisions made outweighs the importance of efficiency.

Functional

A functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions.

Divisional

A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product or service. As a result, different divisions will handle different products or geographic locations/markets. For example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise.

Matrix

A matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it (i.e., theme park accounting, theme park sales, theme park customer service, etc.).

Strategic Organizational Design

Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific structure will function best within a given company environment is an important early step for the management team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations).

McDonald’s fast-food restaurants departmentalize varying elements of their operation to optimize efficiency. This structure is divisional, meaning each specific company operation is segmented (for example, operations, finance/accounting, marketing, etc.).

2.4.3: Considering Technology

Technology impacts organizational design and productivity by enhancing the efficiency of communication and resource flow.

Learning Objective

Recognize the intrinsic structural value of the ever-evolving technological environment

Key Points

• Organizations use technological tools to enhance productivity and to initiate new and more efficient structural designs for the organization. These uses of technology become potential sources of economic value and competitive advantage.
• An example of an organizational structure emerging from newer technological trends is what some have called the “virtual organization,” which connects a network of organizations via the internet.
• A network structure is another kind of organizational structure that is heavily reliant upon technology for communication.
• More traditional organizational structures also benefit greatly from the advance of technology. Managers can communicate and delegate much more effectively through using technologies such as email, calendars, online presentations, and other virtual tools.

Key Terms

supply chain

A system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer.

network

Any interconnected group or system.

Organizational design can be defined narrowly as the strategic process of shaping an organization’s structure and roles to create or optimize capabilities for competition in a given market.

Technology is an important factor to consider in organizational design. Modern organizations can be treated as complex and adaptive systems that include a mix of human and technological interactions. Organizations can utilize technological tools to enhance productivity and to initiate new and more efficient structural designs for the organization, thereby adding potential sources of economic value and competitive advantage.

Technology

Technology has opened doors to incorporating new and advanced forms of organizational design. This is most notably seen through rapid global communications and the ability to constantly and economically be in contact.

Technological Organizational Structures

An example of an organizational structure that has emerged from newer technological trends is what some have called the “virtual organization,” which connects a network of organizations via the internet. Over the internet, an organization with a small core can still operate globally as a market leader in its niche. This can dramatically reduce costs and overhead, remove the necessity for an expensive office building, and enable small, dynamic teams to travel and conduct work wherever they are needed.

A similar organizational design that is heavily reliant upon technological capabilities is the network structure. While the network structure existed prior to recent technologies (i.e., affordable communications via internet, cell phones, etc.), the existence of complex telecommunications networks and logistics technologies has greatly increased the viability of this structure.

Technology and Traditional Structures

Technology can also affect other longstanding elements of an organization. For example, information systems allow managers to take a much more analytic view of their businesses than before the advent of such systems. Managers can communicate and delegate much more effectively through using technologies such as email, calendars, online presentations, and other virtual tools.

Technology has also impacted supply chain management—the management of a network of interconnected businesses involved in the provision of product and service packages required by the end customers in a supply chain. Supply chain management now has the capacity to track, forecast, predict, and refine the outbound logistics, contributing to a wide variety of logistical advantages (such as minimizing costs from warehousing, fuel, negative environmental impacts, or packaging).

Technology simplifies the process of managing reports, collecting communications, and keeping in touch, enabling management in more formal structures to take on more workers. Increases in technology have essentially allowed organizations to scale up their companies through more effective and efficient teams.

2.4.4: Considering the Organizational Life Cycle

The life cycle of an organization is important to consider when determining its overall design and structure.

Learning Objective

Describe the way in which life cycles influence an organization’s overall design and structure

Key Points

• From an organizational perspective, the “life cycle” can refer to various factors such as the age of the organization, the maturation of a particular product or process, or the maturation of the broader industry.
• In organizational ecology, the idea of age dependence is used to examine how an organization’s risk of mortality relates to its age. Richard L. Daft outlines different patterns of age dependence in his four stages model.
• The idea of the Enterprise Life Cycle in enterprise architecture argues for a life cycle concept as an overarching design strategy—a dynamic, iterative process of changing the enterprise over time by incorporating, maintaining, and disposing of new and existing elements of the enterprise.
• Companies must understand clearly where they are in their life cycle and what influence this will have on their optimal organizational structure.

Key Terms

life cycle

The useful life of a product or system; the developmental history of an individual, group or entity.

assessment

An appraisal or evaluation.

strategy

A plan of action intended to accomplish a specific goal.

Organization design can be defined narrowly as the strategic process of shaping organizational structure and roles to create or optimize capabilities for competition in a given market. The life cycle of an organization, industry, and/or product can be an important factor in organization design.

The life cycle of a business

Organizations must always be striving to sustain their position in a given competitive environment. This often requires structural evolution and rapid iterations in the feedback loop of disruption, growth, refinement, and renewal.

Overview of the Life Cycle

From an organizational perspective, “life cycle” can refer to various factors such as the age of the organization itself, the maturation of a particular product or process, or the maturation of the broader industry. In organizational ecology, the idea of age dependence is used to examine how an organization’s risk of mortality relates to the age of that organization. Generally speaking, organizations go through the following stages:

1. Birth
2. Growth
3. Maturity
4. Decline
5. Death

The Enterprise Life Cycle

The Enterprise Life Cycle is a model that underlines the way in which organizations remain relevant. The Enterprise Life Cycle is the dynamic, iterative process of changing an enterprise over time by incorporating new business processes, technologies, and capabilities, as well as maintaining, using, and disposing of existing elements of the enterprise.

Richard L. Daft’s Four Stages

Richard L. Daft theorized four stages of the organizational life cycle, each with critical transitions:

1. Entrepreneurial stage → Crisis: Need for leadership
2. Collectivity stage → Crisis: Need for delegation
3. Formalization stage → Crisis: Too much red tape
4. Elaboration stage → Crisis: Need for revitalization

Structural Implications of the Life Cycle

The life cycle of an organization is important to consider when making decisions about the organization’s structure and design. Richard L. Daft’s model underlines critical problems within each stage of an organization’s life cycle that can often be solved through intelligent structural design.

Daft first notes that the entrepreneurial (or startup) stage of an organization requires leadership. In this situation, decision-making must be enabled and bureaucracy should be minimized. This lends itself well to pre-bureaucratic stuctures in which everyone involved is empowered to take the reins and employ their creativity and innovation.

In the collectivity stage, momentum has been created and expansion is required. This is where functional or divisional strategies may begin to emerge, enabling managers to build teams and delegate tasks.

Companies continue to expand in the formalization stage, requiring increased bureaucracy and more levels of authority to approve a given decision. In this stage they grow large enough to accommodate functional, divisional, or even matrix structures in order to produce at scale. Organizations in this stage must be careful not to fall too strongly into rigid structures that inhibit or disrupt efficiency, communication, or decision-making.

The Enterprise Life Cycle comes strongly into play in the elaboration stage. During this stage the organization must retain its relevance in the industry through reinforcing competitive advantages and/or creating new products to fill changing consumer needs. This requires a great deal of organized creativity and exploration of new markets, which may justify team or divisional structures within the broader organizational structure. Such structures allow small teams to experiment and react quickly as they try new entrepreneurial strategies while the larger organization maintains operative efficiency in established markets.

2.5: Trends in Organization

2.5.1: Flattening Hierarchies

Flattening hierarchies can benefit smaller organizations by increasing employee empowerment, participation, and efficiency.

Learning Objective

Define a flattened hierarchy, specifically in which situations where the utilization of this model is appropriate and beneficial for an organization

Key Points

• A hierarchy can link entities either directly or indirectly; it can also link entities either vertically or horizontally. The only direct links in a hierarchy are to a person’s immediate superior or subordinates.
• The flat organization model essentially “flattens” the hierarchy and promotes employee involvement through a decentralized decision-making process.
• According to the logic behind this model, well-trained workers will be more productive when they are directly involved in the decision-making process rather than closely supervised by many layers of management.
• Flat organizations are most relevant in specific scenarios—most notably small organizations that are dependent upon creativity, freedom of action, and high-powered employees.

Key Term

hierarchy

An arrangement of items in which each item is represented as being above, below, or at the same level as other items.

Links within Hierarchies

Hierarchies can be linked in several different ways. A hierarchy can link entities either directly or indirectly; it can also link entities either vertically or horizontally. The only direct links in a hierarchy are to a person’s immediate superior or subordinates. Parts of the hierarchy that are not linked vertically to one another can be horizontally linked through a path by traveling up the hierarchy; this path eventually reaches a common direct or indirect superior and then travels down the hierarchy again. An example of this would be two colleagues who each report to a common superior but have the same relative amount of authority in the organization.

Flat Hierarchies

Flat (or horizontal) organizational structures have few or no levels of intervening management between staff and managers. This “flattened” hierarchy promotes employee involvement through a decentralized decision-making process. The idea is that well-trained workers will be more productive when they are directly involved in the decision-making process rather than closely supervised by many layers of management.

Flat organization chart

This diagram illustrates the structure of a flat organization: there is no low- or mid-level management—just one manager and the rest of the staff.

Advantages of Flattened Hierarchies

Flat structures empower each individual within the company to be involved in decision-making processes. This allows for a great deal of creative discussion and operational diversity and tends to create great variance in new ideas. By elevating the level of responsibility of baseline employees and eliminating layers of middle management, comments and feedback can quickly reach all personnel involved in decisions. Response to customer feedback can be carried out more rapidly.

This type of structure generally works best in smaller organizations or individual units within larger organizations. Start-up companies, “mom and pop shops,” and other small independent businesses are the most common examples of a flat structure.

Disadvantages of Flattened Hierarchies

Flat organizations are difficult to maintain as companies grow larger and more complex. When organizations reach a critical size, they can retain a streamlined structure; however, they cannot keep a completely flat manager-to-staff hierarchy without impacting productivity. Certain financial responsibilities may also require a traditional hierarchical structure. While the flat structure can foster employee empowerment, involvement, and creativity, it can also create inefficiency in decision-making processes. Some theorize that flat organizations become more traditionally hierarchical when they gear themselves more toward productivity.

Because the interaction between workers is more frequent, this organizational structure generally depends on a more personal relationship between workers and managers. As a result, the structure can be more time-consuming to build than a traditional hierarchical model.

2.5.2: Decentralizing Responsibility

In decentralized structures, responsibility for decision making is broadly dispersed down to the lower levels of an organization.

Learning Objective

Compare and contrast centralization and decentralization of responsibility within the organizational hierarchy

Key Points

• Decentralization is the process of dispersing decision making authority among the people, citizens, employees, or other elements of an organization or sector.
• A decentralized organization shows fewer tiers in the organizational structure, a wider span of control, and a bottom-to-top flow of ideas and decision making.
• The bottom-to-top flow of information allows lower-level employees to better inform the officials of the organization during any decision making processes.
• When companies decentralize authority, however, there can be confusion as to how final decisions are made.

Key Terms

governance

Accountability for consistent and cohesive policies, processes, and decision rights.

authority

The power to enforce rules or give orders.

mechanistic organization

A bureaucratic structure.

Decentralization is the process of dispersing decision making authority among the people, citizens, employees, or other elements of an organization or sector. In decentralized structures, responsibility for decision making and accountability are broadly dispersed down to the lower levels of an organization. This dispersion can be intentional or unintentional. A decentralized organization tends to show fewer tiers in its organizational structure (less hierarchy), a wider span of control, and a bottom-to-top or horizontal flow of decision making and ideas.

Decentralization

The management structure in a decentralized organization changes from a top-down approach to more of a peer-to-peer approach.

Contrasting Centralized and Decentralized Structures

In a centralized organization, decisions are made by top executives on the basis of current policies. These decisions or policies are then enforced through several tiers of hierarchy within the organization, gradually broadening the span of control until they reach the bottom tier.

In a decentralized organization, the top executives delegate much of their decision making authority to lower tiers of the organizational structure. This type of structure tends to be seen in organizations that run on less rigid policies and wider spans of control among each officer of the organization. The wider spans of control also reduce the number of tiers within the organization, giving its structure a flat appearance .

Decentralized organizational chart

This image illustrates a decentralized (often referred to as a “flat”) organizational chart. Note that there are not multiple layers of management; there is one manager and then the rest of the staff. This means that each staff-person necessarily has more responsibility and therefore more autonomy.

Advantages of Decentralization

One advantage of this structure—if the correct controls are in place—is the bottom-up flow of information. This flow allows lower-level employees to better inform the officials of the organization during any decision making processes. For example, if an experienced technician at the lowest tier of an organization knows how to increase the efficiency of the production, the bottom-to-top flow of information can allow this knowledge to pass up to the executive officers.

Disadvantages of Decentralization

On the other side of the argument, when companies decentralize authority there can be confusion as to how final decisions are made. It can be difficult to empower multiple people without certain decisions negatively interacting with other decisions. Decentralized organizations must be mindful of the possibility of running in too many different directions at once. Because of this, decentralization is most effective in organizations that have transparent strategies, a strong mission, and a clear vision.

2.5.3: Increasing Empowerment

Modern organizations are more aware of the value of empowered employees and actively strive to structurally increase empowerment.

Learning Objective

Discuss the advantages of empowerment in an organization, and how organizational structure can improve upon the promotion of empowered employees

Key Points

• Empowerment is a process that enables individuals and groups to fully access their personal and collective power, authority, and influence, and to employ this power when engaging with other people, other institutions, or society.
• Leaders within an organization can play a strong role in encouraging employees to put empowerment into practice.
• To enable empowerment, managers can share information, provide employees with autonomy, and migrate to self-managed teams when possible.
• Though the idea of empowerment can produce successful results, it is important to understand the risks. More decision-makers means more discussion about how a process should be accomplished and more moving parts within the organization, increasing complexity.

Key Term

empowerment

The accessing and employing of political, social, or economic power by an individual or group.

Defining Empowerment

Empowerment is a process that enables individuals and groups to fully access personal and collective power and employ this power when engaging with other people, other institutions, or society. Empowerment does not give people power; rather, it helps to release and express the power that people already have.

Empowerment encourages people to gain the skills and knowledge that allows them to overcome obstacles in life and work. This will ultimately enable personal development and a deeper sense of professional fulfillment. Empowering people in organizations can encourage more confident, capable, and motivated employees. Organizations are increasingly aware that empowerment often leads to better performance and higher operational efficiency, and there is a general trend toward structuring organizations for empowerment.

Empowerment within the Organization

Empowering employees in the workplace means providing them with opportunities to make their own decisions related to their tasks. This can be a powerful and positive aspect within an organization that promotes shared power and enables checks and balances in decision-making processes.

Empowerment in organizations includes:

• Making decisions about personal and collective circumstances;
• Accessing information and resources for decision-making;
• Considering a range of options from which to choose (and understanding the options rather than just deciding yes or no);
• Exercising assertiveness in collective decision-making;
• Employing positive thoughts toward the ability to make change;
• Learning and accessing skills for improving personal and collective circumstances; and
• Informing others’ perceptions though exchange, education, and engagement.

Though the idea of empowerment can produce very successful results, there are certain risks are involved. When turning responsibility over to others, it is important to keep in mind that diversifying power creates more voices and therefore potentially more conflict and discussion. All of these elements can slow down the decision-making process. As organizations move toward higher levels of empowerment, protocols should be put in place to mitigate failure and improve decision-making efficiency across the board.

Decentralization

One key technique of empowering employees and providing autonomy is decentralizing the organizational structure. Notice how the diagram of the centralized organization looks like one large asterisk with many spokes, whereas the diagram of the decentralized organization looks like many small interconnected asterisks.

Increasing Empowerment

Leaders within an organization can encourage employees to put empowerment into practice in several ways. If leaders want to tap into the possibilities of an empowerment-based company, they need to have confidence in employees. Employees should also be given opportunities to make their own decisions and succeed. For an empowerment-based organization, rules and policies that interfere with self-management should be made more lenient. Leaders should also set goals that can inspire people.

The following are three key concepts that leaders can use to empower employees throughout an organization:

• Share information with everyone. By sharing information with everyone, leaders gain a clear picture of the company and its current situation. Allowing all employees to view company information helps to build trust between employers and employees. This also provides decision-makers with important perspectives to assess prior to deciding.
• Create autonomy through boundaries. By opening communication through information sharing, space can be created for feedback and dialogue about what holds people back from being empowered. It is critical that leaders minimize micro-management so that employees, who are specialists at the function they are assigned, can set the tone for how a particular task is accomplished.
• Replace the old hierarchy with self-managed teams. By replacing the old hierarchy with self-managed teams, more responsibility is placed upon unique and self-managed teams; this can lead to better communication, diversity of strategies, and higher performance.

The success of the modern organization relies heavily on understanding the complexity of a diverse global market. Leveraging employee knowledge and enabling autonomy is increasingly important in capturing value and attaining competitive advantages in this complex business environment.

2.5.4: Increasing Adaptation

In order to succeed, modern organizations must constantly adapt to evolving technologies and expanding global markets.

Learning Objective

Identify the importance and inherent value of increasing adaptation within company structures and performance

Key Points

• Technological advances, global market expansions, and the potential for constant (sometimes disruptive) innovation all point to the need for organizations to be adaptive.
• Blockbuster and Netflix provide a classic example: in this case, Blockbuster was simply too slow to adapt to the demand for live-streaming videos.
• If an organization takes on the identity of a growing, adapting, and learning organization, these qualities become part of the fabric of how it operates.
• Implementing an adaptable strategy may have effects that ripple across an organization. Minimizing disruption can reduce costs and save time.
• Resistance to change is considered a major obstacle to creating effective adaptability in an organization. Integrating changes step by step while utilizing focus groups and training sessions can improve the efficacy of adaptation.

Key Term

adaptation

Adjustment to extant conditions; modification of a thing or its parts in a way that makes it more fit for existence under the conditions of its current environment.

The Importance of Adaptation

Organizational adaption is becoming increasingly relevant to both strategy and structure as the business environment changes more quickly each year. Technological innovations, global market expansions, and the potential for constant (sometimes disruptive) innovation all point to the need for organizations to be adaptive.

There are a number of examples in which some organizations have adapted to new technologies or global competition, while others have failed to adapt and subsequently gone under. Blockbuster and Netflix provide a classic example: in this case, Blockbuster was simply too slow to adapt to the demand for live-streaming videos. Netflix, on the other hand, embraced this technological evolution and pioneered a user-friendly interface, gaining the company enormous value.

Increasing Adaptation

Strategic management largely pertains to adapting an organization to its business environment. The greatest agent for organizational change is the socialization aspect of culture, which can be empowered structurally. If an organization takes on the identity of a growing, adapting, and learning organization, these qualities become part of the fabric of how it operates. Knowing how and being able to increase this adaptability is important to organizational success.

Implementing a strategy of adaptation may have effects that ripple across an organization. Increasing an organization’s ability to adapt to change and minimize disruption can reduce costs and save time. One approach for increasing adaptation is to appoint an individual to champion the changes, address and eventually enlist opponents, and proactively identify and mitigate problems.

Challenges in Adaptation

Resistance to change is considered a major obstacle to creating effective adaptability in an organization. Organizational change can lead to loss of stability and—if this instability becomes great enough—loss of organizational effectiveness.

Organizational loss of effectiveness (LOE)

Organizational change can cause a loss of stability and results in the development of a predictable and measurable set of symptoms within an organization. When a significant number of these symptoms are present simultaneously, an organizational loss of effectiveness (LOE) will occur (Grady, 2005).

The following are methods that can be employed to help an organization and its staff to cope with change:

• Form focus groups. Staff from different departments can be selected to form focus groups, where quality data can be collected. In focus group discussions, staff should be given the chance to freely express their opinions and share their experiences.
• Provide training. Providing training courses to staff on new processes or structures can help to increase staff competence and reduce their resistance to change.
• Implement changes step by step. This involves first implementing the system in small groups—such as several departments or sections—and then widening the scope of implementation. This step-by-step approach can help by exposing problems raised simultaneously across the small groups and providing management with sufficient time to solve these problems before implementing the system across the organization.

2.5.5: Moving to Flexible Work Schedules

Employers can offer flexible working arrangements in the form of flextime and telecommuting work.

Learning Objective

Identify critical factors of success in creating a “telework” organization

Key Points

• Companies have begun to recognize how important a healthy work-life balance is to the productivity and creativity of their employees. Integrating new technologies for flexible schedules is a great opportunity to capture this value.
• Flextime and telecommuting (telework) are popular strategies that enable employees to set their own schedules and work from wherever is most convenient for them.
• In addition to supporting the required incremental technologies, a well-functioning telework organization needs a management system that is at least as effective as that of a traditional organization.
• Management teams face additional issues such as how to supervise employees who are often out of the office, how to monitor staff productivity with less personal interaction, how to build a strong virtual team, and how to maintain relationships between remote employees.

Key Term

telecommute

To work from home, sometimes for part of a working day or week, using a computer connected to the employer’s network or via the internet.

Companies have begun to recognize how important a healthy work-life balance is to the productivity and creativity of their employees. Research by Kenexa Research Institute in 2007 showed that employees who were more favorable toward their organization’s efforts to support work-life balance also indicated a lower intent to leave the organization, greater pride in their organization, a willingness to recommend the organization as a place to work, and higher overall job satisfaction.

Employers can offer a range of different programs and initiatives that support such a work-life balance. Flexible working arrangements such as flextime and telecommuting work are becoming increasingly popular. More proactive employers can also provide compulsory leave, implement strict maximum hours, or foster an environment that encourages employees not to continue working after hours.

Telecommuting

Telecommuting (or telework) is a work arrangement in which employees do not commute to a central place of work. A person who telecommutes is known as a “telecommuter,” “teleworker,” or “home-sourced employee.” Many telecommuters work from home while others—sometimes called “nomad workers”—use mobile telecommunications technology to work from coffee shops or other locations. This allows employees the flexibility of adapting their work schedule to their living situation.

This arrangement is also quite popular in circumstances of sick leave, pregnancy, parenting, and other important life events. In the past these events could have resulted in temporary loss of employment. Being able to work from anywhere with an internet connection is a modern luxury that adaptable companies should be well aware of.

Home office

This small office is designed for telecommuting.

Flextime

Flextime (also called flexitime or flexi-time) is a variable work schedule, unlike traditional work arrangements in which employees work a standard 9 a.m. to 5 p.m. shift. In this arrangement, there is typically a core period of approximately 50% of the total working day when employees are expected to be at work (for example, between 11 a.m. and 3 p.m.). The rest of the working day is “flextime” in which employees can choose when they work. Employees are still required to complete the necessary work and achieve total daily, weekly, or monthly hours in the region of what the employer expects.

A flextime policy allows staff to determine when they will work, and a flexplace policy allows staff to determine where they will work. These strategies allow employees to adapt their work hours based on public transport schedules, child-care responsibilities, rush-hour traffic, and other elements.

Establishing a Telework Organization

In addition to supporting the required incremental technologies, a well-functioning telework organization needs a management system that is at least as effective as that of a traditional organization. Management teams face additional issues such as how to supervise employees who are often out of the office, how to monitor staff productivity with less personal interaction, how to build a strong virtual team, and how to maintain relationships between remote employees.

Some suggested best practices for maintaining a successful telework organization include:

• Develop a daily schedule. Setting a standardized daily schedule can help remote teleworkers feel as though they are really at work. It can also make it easier for supervisors to monitor staff activities and can lead to increased productivity.
• Establish milestone dates. Milestone dates help keep projects on track and make it easier to spot problems while there is still time to effectively deal with them.
• Encourage social networking. Employee surveys show that being able to keep in touch and communicate with colleagues despite physical distance can boost employee satisfaction and encourage top talent to stick around.
• Address problems right away. Respond to problems immediately even if they are reported by email or text message. This will prevent teleworkers from feeling isolated.
• Design key performance indicators (KPIs) for remote workers. These KPIs can also be used to measure the effectiveness of in-office staff and maintain an equivalence among the distinct employee categories.
• Start workdays by holding a five-minute team video-conference. This helps supervisors to maintain a regular check-in routine; it also enables employees to catch up on team work progress and feel connected to the whole organization.
• Manage by observation. A successful telework or telecommuting program requires a management style that is results-oriented (as opposed to task-oriented). This is referred to as management by objectives as opposed to management by observation.

2.5.6: Increasing Coordination

Increasing coordination helps organizations to maintain efficient operations through communication and control.

Learning Objective

Identify the way in which effective coordination across an organization can be increased through effective structure and good management

Key Points

• Coordination is a managerial function in which different activities of the business are properly adjusted and interlinked.
• The management team must pay special attention to issues related to coordination and governance and be able to improve upon coordination through effective management.
• Managers should strengthen communication across all facets of the organization to increase the level of integration between each moving part.
• If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be left unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated.

Key Terms

division

A section of a large company.

margin

A permissible difference; allowing some freedom to move within limits.

centralization

The act or process of combining or reducing several parts into a whole.

Defining Coordination

Coordination is the act of organizing and enabling different people to work together to achieve an organization’s goals. It is a managerial function in which different activities of the business are properly adjusted and interlinked.

Employees within the functional divisions of an organization tend to perform a specialized set of tasks, such as engineering. This leads to operational efficiency within that group. However, it can also lead to a lack of communication between various functional groups within an organization, rendering the organization slow and inflexible .

Organizational structure

This is an example of an organizational structure. At a high level are multiple functional groups, or “modules”—technical, marketing, and intellectual property. The linked working groups (e.g., data coding workgroup, security workgroup, and audio and video compression workgroup) within the technical functional group likely have coordinated functions.

Increasing Coordination

Coordination is simply the managerial ability to maintain operations and ensure they are properly integrated with one another; therefore, increasing coordination is closely related to improving managerial skills. The management team must pay special attention to issues related to coordination and governance and be able to improve upon coordination through effective management.

Increasing coordination internally can be accomplished by keeping all moving parts of the organization on the same page. There are a number of ways to improve upon the coordination of different departments, work groups, teams, or functional specialists. These include creating a well-communicated and accurate mission statement; clearly defining strategic objectives; monitoring and evaluating each functional group; providing company-wide updates and communications from each department; and, wherever possible, promoting cross-departmental meetings and projects. While this list is long and complex, the underlying concept is relatively simple: managers should strengthen communication across all facets of the organization to increase the level of integration between each moving part.

Structural Implications

In practice, coordination involves a delicate balance between centralization and decentralization. However, maintaining coordination does not necessarily imply that decision-making processes are centralized or that actions are carried out without the support of employees. Put simply, it is important to ensure that there is a person or team in place that takes responsibility for general tasks.

If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be left unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated and provides structure to operational expectations. Structure is a central determinant of effective coordination across an organization as it enables communications, underlines responsibilities, and provides concrete authority in decision-making.

1.3: Core Requirements of Successful Managers

1.3.1: The Importance of Accountability

Learning Objective

Discuss the role accountability plays in driving managerial performance.

Key Points

• Accountability in business is critical, as the concept enhances the ethics of managers.
• Being accountable means standing by decisions, actions, and the overall well-being of projects.
• Accountability is also a management process that ensures employees answer to their superior for their actions and that supervisors behave responsibly as well.
• Accountability addresses both the organization’s expectation of the employee and the employee’s expectation of the organization.
• Accountable employees help to increase performance of business as a whole and to maintain a positive company culture, vision, and ethics.
• Accountability on a global scale, particularly in the case of NGOs, is complicated by the fact that different countries have varying legislative perspectives when it comes to accountability.

Key Terms

accountability

Being responsible for one’s own work and answering for the repercussions of one’s own actions.

paradigmatic

Pertaining to a given template, context or model.

Example

• The United States Department of Organization provides specific guidelines for managerial accountability. Managers are responsible for the quality and timeliness of program performance, for increasing productivity, for controlling costs and mitigating adverse aspects of agency operations, and for assuring that programs are managed with integrity and in compliance with applicable law.

Introduction

In organizations, accountability is a management control process in which responses are given for a person’s actions. These responses can be positive or negative. Depending on the response, the person might need to correct his or her error. In other words, accountability refers to individual responsibility for the work performed and answering to peers and superiors for performance.

Accountability is often used synonymously with responsibility, blameworthiness, and liability. As an aspect of governance, accountability has been central to discussions related to problems in the public, non-profit, and corporate sectors.

In leadership roles, accountability is the acknowledgment and assumption of responsibility for actions, products, decisions, and policies including the administration, governance, and implementation within the scope of the role or employee position. Accountability also encompasses the obligation to report, explain, and answer for resulting consequences. As leaders often make decisions with far-reaching consequences, accountability has a substantial ethical component.

Government accountability

Governing authorities have the obligation to report, explain, and answer for resulting consequences of their actions.

Accountability in Companies

Accountability also has a strong connection to expectations. Employees who do not meet the expectations of their supervisor are held accountable for their actions and must answer for their inability to do so.

Accountability is crucial to ensuring high performance within an organization. However, managers must clearly communicate their expectations to the person who is responsible for the specified action or task. Clear communication of expectations and well defined goals is a very effective tool to enhancing performance at every level of organization.

Without defined goals, employees lack a frame of reference for how they are performing in the workplace. They are unable to rely on guidelines or a structure that helps them achieve their performance goals. In many organizations, the management team and board of directors create goals for themselves and the general manager, while the general manager creates goals for department managers. This process is replicated throughout the organization, down to the department managers who create goals for entry-level employees.

Both subordinates and supervisors should have a clear idea of how their projects should be handled and delivered. A clear expectation level and the understanding that all employees are accountable for their performance boosts employee morale and productivity in the workplace. However, because different individuals in large organizations contribute in various ways to a company’s decisions and policies, it is often difficult to identify who should be accountable for the results.

Global Accountability

Recently, accountability has become an important topic in the discussion about the legitimacy of international institutions. Because there is no global, democratically elected body to which organizations must account, global organizations from all sectors’ bodies are often criticized as having large accountability gaps.

One emblematic problem in the global context is that of institutions such as the World Bank and the International Monetary Fund, which are founded and supported by wealthy nations and provide aid in the form of grants and loans to developing nations. The question persists as to whether these institutions should be accountable to their founders and investors or to the persons and nations they help.

In the debate over global justice and its distributional consequences, those in highly developed, heavily populated areas tend to advocate greater accountability to traditionally marginalized populations and developing nations. On the other hand, those who adopt a more nationalistic or provincial view deny the tenets of moral universalism; they argue that beneficiaries of global development initiatives have no substantive entitlement to call international institutions to account. The One World Trust Global Accountability Report, published in a first full cycle from 2006 to 2008, is one attempt to measure the capability of global organizations to be accountable to their stakeholders.

Examples

Example 1

The United States Department of Organization provides specific guidelines about accountability of managers. Managers are responsible for the quality and timeliness of program performance, increasing productivity, controlling costs and mitigating adverse aspects of agency operations, and assuring that programs are managed with integrity and in compliance with applicable law.

Example 2

The situation at Enron is another strong example of accountability – where the actions of a few unethical individuals caused great harm to the broader corporation and all stakeholders. In the case of Enron, the individuals involved in the negative actions are held accountable for the subsequent consequences, which reduces the likelihood similar things will happen again in the future.

1.3.2: The Importance of Leverage

Learning Objective

Describe how general managerial functions gain leverage in the workplace and how this relates to motivation

Key Points

• While there are different ways to view the concept of gaining leverage as a manager, the underlying principle should be one of synergy.
• Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees to create leverage in an operational system. Leverage primarily revolves around effective delegation and motivation.
• Effective managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as their aspirations and motivators, to appropriately carry out essential tasks.
• Through combining delegation and motivation skills, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction.

Key Terms

Synergy

Benefits resulting from combining two different groups, people, objects, or processes.

incentives

Ways to promote a desired action.

leverage

A technique used to multiply gain or loss.

Why Leverage Matters

Management roles are defined by the capacity of the manager to motivate and leverage the human resources in the organization to achieve efficiency in operations. As a result, effective managers are capable of optimizing the time and effort of employees to attain the highest possible value. This optimization requires a thorough understanding of basic managerial functions and the way in which incentives can be applied according to motivational theories in the workplace.

Although there are different ways of understanding the concept of gaining leverage as a manager, the underlying principle should be one of synergy. The concept of synergy emphasizes that one additional employee’s output is greater than an arithmetic expectation. More simply put, synergy means that 1 + 1 > 2 (a common adage in business for synergy is 1 + 1 = 3). Leverage, therefore, is about getting more out of a system than is put in, resulting in a value-added proposition.

Design management

Teams can create solutions through integration, giving the manager the ability to solve problems more complex than one individual can handle.

Managerial Functions and Leverage

Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees through the use of highly developed decision-making and interpersonal skills.

Delegation

Planning, organizing, and staffing are the preliminary steps to carrying out a project, setting schedules and constructing a team with the appropriate skills to execute the project effectively. This half of the managerial responsibilities falls largely within the decision-making realm, which correlates to a manager’s ability to organize tasks and delegate these tasks effectively to gain leverage.

The concept of delegation enables managers to minimize their own time commitment to specific elements of a process, as well as improve quality and efficiency through the use of specialists (managers are typically generalists). Delegation therefore allows managers to optimize team structures and skill-set distributions to allow for synergy in operations. Effective managers are able to juggle a number of teams of specialists, empowering their autonomy and controlling the workflow in a way that aligns with organizational objectives. Delegation sounds easy on paper, but it requires a number of intrinsic skills such as communication, organization, multitasking, and the ability to “zoom out” and observe the bigger picture (and identify the critical components that enable it).

Motivation

Planning, organizing, and staffing are followed by the more interpersonal elements of management: directing, monitoring, and motivating the staff. At this point, managers face the challenging task of assessing the skills of employees, assigning relevant tasks, monitoring progress, and providing incentives to drive productivity. Managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as aspirations and motivators, to appropriately carry out these tasks. As a result, understanding motivational theories is at the heart of effectively managing employees.

Motivating employees to leverage the human resources within an organization is central to a manager’s responsibilities; it is achieved by understanding what drives productivity. Generally, positive incentives far outweigh negative ones in leveraging employees. To gain leverage, managers must ascertain what opportunities will drive the highest level of productivity in their work groups.

By effectively combining this motivational understanding with the expectations and responsibilities of managing employees, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction.

Example

A business with high liquid capital may invest in information structure to reduce the cost of production and increase automation. These changes will ultimately achieve a higher productivity.

1.3.3: The Importance of Performance Targets

Learning Objective

Explain the importance of performance targets in the business framework and the approaches to communicating and achieving them

Key Points

• A key performance indicator (KPI) sets a performance standard for an organization, a business unit, or an employee.
• Goal setting means establishing what a person or an organization wants to achieve. Goals should be specific, measurable, achievable, realistic, and time-targeted (SMART).
• Motivation is the key component to effective goal setting. Organizations must consider performance targets within the context of creating motivated employees, who will in turn perform more effectively.
• Performance targets are particularly useful due to their quantitative nature, which allows the measurement of outcomes and assessment of operations.

Key Terms

KPI

Key Performance Indicator; a tool to measure performance.

motivation

Willingness to perform an action, especially a behavior; an incentive or reason for doing something.

Managerial effectiveness is often assessed on the ability to achieve performance targets. Three basic concepts are involved in communicating and achieving targets: key performance indicators, goal setting, and motivation.

Performance Indicators

A key performance indicator is a tool for performance measurement used by organizations. It is used to set a performance standard for an organization, a business unit, or an employee. It is also used to evaluate the overall success of the organization and the success of a specific activity in the organization.

Success can be defined as progress towards strategic or operational goals such as zero defects, percentage of customer satisfaction (or retention), profitability margins, etc. KPIs are usually understandable, meaningful, and measurable. For the employee to achieve them, objectives should be clear and simple to understand.

Goal Setting

Goal setting is an effective tool for progressive organizations, because it provides a sense of direction and purpose. Employees benefit greatly from understanding what is expected of them and how they can measure this success (or lack thereof). A clear concept of achievement leads to independent personal development, and goal setting can improve the organization’s performance. Challenging goals tend to result in higher performance than easy or no goals.

Goal setting means establishing what a person or an organization wants to achieve. In setting these objectives, managers must ensure the goals are both understandable and achievable to meet performance targets. The SMART model is a good framework to keep in mind when generating goals and objectives. It aims to design goals that are specific, measurable, achievable, realistic, and time-targeted (SMART).

SMART criteria

Each component of the SMART model describes an effective attribute of a performance objective. Objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound.

The SMARTER framework expands upon this model by noting that objectives should be evaluated and reviewed consistently as well.

Motivation

Motivation elicits, controls, and sustains certain goal-directed behaviors. There are a number of approaches to motivation: physiological, behavioral, cognitive, and social. Motivated employees are also more quality oriented and more productive.

1.3.4: Financial Rewards for Managers

Learning Objective

Describe how managers and human resource professionals can effectively empower employees to achieve success and fulfillment

Key Points

• Understanding an employee’s needs and future objectives is critical in assigning them the responsibilities that align with their goals and that will serve to develop their skill set in a desired direction.
• When assigning tasks, managers must keep career success and development in mind. It is beneficial to plan and implement employee objectives based upon career aspirations and skills.
• Managers are also tasked with monitoring and reviewing employee outcomes with an eye for improvement opportunities. Performance monitoring allows for active skill development through constructive feedback.
• Managers may employ numerous tools in developing employees in a meaningful and fulfilling way to ensure their future success. These tools include case studies, consultation, mentoring, and technical assistance.

Key Terms

empower

To give someone the strength and/or the means to accomplish something.

Consultation

A conference for the exchange of information and advice.

From a human-resources framework, managers are largely responsible for the well-being of their employees in regards to providing opportunities for career development and personal fulfillment.

Understanding an employee’s needs and future objectives is critical in assigning them responsibilities that align with their goals and that will serve to develop their skill set in a desired direction. A manager is also a leader, and leadership is a complex facet of the managerial process. Leading employees in an empowering way and enabling career success and fulfillment are central tasks in improving employee outcomes and creating more value for the organization.

When assigning tasks, managers must keep career success and development in mind. A reasonable rule of thumb is the plan-implement-monitor-review model illustrated in the figure below. Planning (based on employee objectives) and implementing (based upon shared expertise) provide a framework to move the employee in the direction of success. Monitoring progress and reviewing it will allow the employee to remain meaningfully engaged, working towards the common goal of success while gaining experience and skills from managerial expertise.

Facilitating employee success

By employing these steps, a manager can help their employees be successful.

Combining this model for success with a working understanding of a given employee’s objectives and fulfillment needs helps to ensure that employees remain motivated and satisfied with their current roles. Empowering employees in a developmental direction and providing them with challenges that stretch their abilities are substantial motivators. These are important developmental tools companies can use to obtain the highest possible value from their human resource investments.

Strategies for Promoting Employee Success

Promoting career success for employees and managers involves the creation of developmental goals that build stronger skills and aim toward fulfillment. Goal creation is generally achieved using varying approaches and experiences. These may include coaching, higher education, mentoring, reflective supervision, technical training, and consultation. When to apply which particular approach is the primary responsibility of a manager, as is assessing employees’ progress and trajectory towards the completion of their personal career objectives. Following are a few tools managers may use to optimize returns on career development:

• Case Study Method – Case studies are an excellent way to drive employee experience in a realistic and meaningful way. These incorporate real-life situations that have happened in the past as a method for practicing decision making and assessing performance. Conclusions can then be applied by the employee or manager by assuming the role of the decision makers.
• Consultation – Consulting assesses employee abilities through observing performance, reflecting upon these observations, and suggesting methods for improvement. This process is an important responsibility of any manager.
• Mentoring – Mentoring is an excellent approach to enhance career success in which a manager matches two employees of different experience levels to learn from one another. Mentoring is usually accomplished by allowing an outside observer to evaluate and suggest improvements for newer employees who have had less time to develop in a particular role.
• Technical Assistance – Helping employees implement new technologies and acquire modern skill sets is a growing field in career development. Technical training is provided to enable employees to be more effective with newer methodologies, tools, and equipment. This approach can be of particularly high importance to career development for older demographics, who may have extensive experience in more traditional methods.

1.4: Additional Roles and Skills of Managers

1.4.1: Mintzberg’s Management Roles

Mintzberg defined ten management roles within three categories: interpersonal, informational, and decisional.

Learning Objective

Outline the ten management roles under their three categorical headings, as devised by McGill University professor Henry Mintzberg

Key Points

• Mintzberg characterizes management using three categories and ten roles, each of which exhibits critical managerial skill sets useful for business leaders in a variety of contexts.
• Interpersonal roles include: figurehead, leader, and liason.
• Informational roles include: mentor, disseminator, and spokesman.
• Decisional roles include: entrepreneur, disturbance handler, resource allocator, and negotiator.
• It is important to recognize that no single manager can be all things to all people at once. Good management requires assessing which role is appropriate when and determining if new talent is required to complement a skill set.

Key Terms

Informational

Designed or able to impart information.

decisional

Having the power or authority to make decisions.

Management is incorporated into every aspect of an organization and involves different roles and responsibilities. Henry Mintzberg (1973), the Cleghorn Professor of Management Studies at McGill University, defined ten management roles within three categories: interpersonal, informational, and decisional.

Each of the three categories embraces the different roles.

Interpersonal

1. Figurehead: symbolic head; performs a number of routine duties of a legal or social nature.
2. Leader: motivates and activates subordinates; performs staffing, training, and associated duties.
3. Liaison: maintains a self-developed network of outside contacts and informers who provide favors and information.

Informational

1. Mentor: seeks and receives a wide variety of special information (much of it current) to develop a thorough understanding of the organization and environment; emerges as the nerve center of internal and external information for the organization.
2. Disseminator: transmits information received from outsiders or from other subordinates to members of the organization. Some information is factual; some involves interpretation and integration of diverse value positions of organizational influences. Disseminating what is of value, and how, is a critical informational role.
3. Spokesman: transmits information (plans, policies, results, etc.) within and outside of the organization; serves as an expert on the organization’s industry.

Decisional

1. Entrepreneur: searches the organization and its environment and initiates improvement projects to bring about change; supervises design of certain projects as well.
2. Disturbance Handler: takes corrective action when the organization faces important, unexpected disturbances.
3. Resource Allocator: allocates the organization’s resources; makes or approves of all significant organizational decisions.
4. Negotiator: represents the organization at major negotiations.

A manager’s job is never static; it is always dynamic. At any given time, a manager may carry out some combination of these roles to varying degrees, from none of the time to 100 percent of the time. Throughout an individual’s working life, a person may hold various management positions that call upon different roles.

No one person can be all things to all people. While these ten roles are highly useful in framing organizational leadership, to expect one person to fill each role in a large organization is impractical. Instead, astute hiring managers will hire people with one or two specific roles in mind, thereby creating a team of managers capable of handling the wide variety of challenges in the business world today.

1.4.2: Managing Organizational Priorities

Agendas help to organize, prioritize, and facilitate discussion about a given set of points in an organizational pursuit.

Learning Objective

Explain the process of pursuing agendas, particularly from the perspective of change management, through the implementation of strategies and policies

Key Points

• An agenda, particularly within an organization or business, is loosely defined as an organized approach toward accomplishing a series of objectives or discussing a series of points.
• In business, an agenda is commonly brought to a meeting to ensure everyone understands what will be discussed.
• Public companies have an important relationship with agendas, as they are often tasked with keeping meeting minutes, a verbatim overview of what was discussed for public viewing and consideration.
• Skilled managers may both construct and implement an agenda in an organizational setting.
• Good managers can balance the various interests, operations, and technical skills of a given team to ensure the objectives and timelines set forward by the agenda are carried out.

Key Terms

agenda

A temporally organized plan for matters for discussion or tasks to be carried out.

project management

The discipline of organizing and handling resources (e.g., people) in such a way that an endeavor is completed within defined scope, quality, time, and cost constraints.

Defining Agendas

An agenda, particularly from the perspective of an organization or business, is loosely defined as a organized approach toward accomplishing a series of objectives or discussing a series of points. Agendas are most commonly used in a short-term setting, such as a meeting or a given week’s work plan; however, they can also be used as a longer-term strategic planning component.

Example of an agenda

An agenda sometimes combines a process flow and a checklist, where employees and management involved in a given operational process track progress and provide updates. The image above illustrates a Gantt chart, which uses a bar graph to show progress toward completion.

Business Application

In business, an agenda is commonly brought to a meeting to ensure everyone understands what will be discussed. Agendas should be distributed well before the meeting or discussion to ensure individuals attending have time to prepare their discussion points and to familiarize themselves with what others will be discussing. Reading the agenda in advance ensures that the overarching goals of a given meeting are clear and understood by all participants prior to the discussion.

Agendas may also be used as a means of highlighting current progress and projecting future progress. This type of agenda provides a timeline and tracking mechanisms for participants involved in a given project and may or may not require onsite meetings. Agendas showing project progress are often used by contractors and those in the field of project management.

Keeping Minutes

Agendas are also used broadly in the political and public domain, where meetings held by public institutions, NGOs, or political groups are approached and organized via a given agenda. Public companies have a more important relationship with agendas than private companies, as they are usually required to record meeting minutes. These minutes are essentially a verbatim record of what was discussed and are made available for public viewing and consideration. As these discussions are accessible by any and all stakeholders, the outline and preparation of a valid and relevant agenda is of particularly high importance.

Relevance to Management

Skilled managers may construct and implement an agenda in an organizational setting. Building an agenda requires broad familiarity with all critical components of a given department, project, or organizational objective. Creating a relevant agenda and distributing it to concerned parties in a timely fashion requires organizational ability, communication skills (including the ability to write clearly and concisely), and strategic know-how (knowing what to discuss and in what order). Managers must be skilled in controlling the pace, tone, and trajectory of discussions at meetings. Agendas are an excellent tool for organizing thoughts and leading discussion.

The pursuit of agendas requires a similar set of managerial skills. Ensuring follow-through and keeping employees on task and on schedule requires an ability to multitask—to oversee various aspects of a given operational area simultaneously. Good managers can balance the various interests, operations, and technical skills of a given team to ensure the objectives and timelines set forth in the agenda are carried out.

1.4.3: Technical Skills of Successful Managers

Successful managers must possess certain technical skills that assist them in optimizing managerial performance.

Learning Objective

Outline the four critical technical skills commonly utilized by successful managers and supervisors in optimizing organizational performance

Key Points

• Robert Katz identifies three critical skill sets for successful management professionals: technical skills, human skills, and conceptual skills.
• Of the three skill sets identified by Katz, technical skills are the broadest category and the most easily defined. A technical skill is defined as a learned capacity in just about any given field of work, study, or even play.
• Front-line managers represent a substantial portion of management; they rely on their technical skills daily.
• Office environments require a complex set of communicative, technological, and data-organization skills to optimize managerial performance.

Key Terms

technical skill

The learned capacity or ability to carry out predetermined results using tools, machines, techniques, crafts, systems, and methods of organization.

delegation

The act of committing a task to someone, especially a subordinate.

Defining Technical Skills

Robert Katz identifies three critical skill sets for successful management professionals: technical skills, human skills, and conceptual skills. While these three broad skill categories encompass a wide spectrum of capabilities, each category represents a useful bucket for these skills to fall into and describes the way in which these skills interact with management at various levels.

Of the three skill sets identified by Katz, technical skills are the broadest, most easily defined category. A technical skill is defined as a learned capacity in just about any given field of work, study, or even play. For example, the quarterback of a football team must know how to plant his feet and how to position his arm for accuracy and distance—both technical skills. A mechanic, meanwhile, needs to be able to deconstruct and reconstruct an engine, to employ various machinery (lifts, computer scanning equipment, etc.), and to install a muffler.

Front-Line Managers’ Technical Skills

Managers also need a broad range of technical know-how. All industries need management, and management must exist at various organizational levels. Front-line managers represent a substantial part of management who must use their technical skills daily. Front-line managers must communicate up the chain of command while still speaking the language of the workers who are executing the hands-on components of the industry. A technical skill for a front-line manager might include a working understanding of a piece of equipment: the manager must be able to coach the employee on its operation, as well as communicate to upper managers the basic functions of the machinery.

Technical Skills in Upper Management

In addition to front-line managers, managers in other corporate roles and at higher levels require critical technical skills. These can include office-based competencies such as typing, programming, website maintenance, writing, giving presentations, and using software such as Microsoft Office or Adobe. Office environments require a complex set of communicative, technological, and data-organization skills in order to optimize managerial performance.

Successful managers in an organization must therefore learn to use the technological assets at their disposal, collecting critical information and data to communicate upward for strategic planning. An example of information management is a mid-level manager in the automotive industry who is responsible for recognizing global marketing potential. This individual must be capable of realizing the legal, demographic, social, technological, and economic considerations of entering a market; the manager will use effective research and delegation skills and also consolidate the information into a useful presentation using technological and communicative skills.

Katz postulates that the higher up in the organization an individual rises, the more conceptual skills (and fewer technical skills) are necessary. Senior managers need fewer technical skills because strategic decision-making is inherently more conceptual; mid- and lower-level skills such as data collection, assessment, and discussion are all more technical. Even so, all disciplines of management require a broad range of skill sets for effective business processes to occur.

Example

A technical skill for a front-line manager might include a working understanding of a piece of equipment: the manager must be able to coach the employee on its operation, as well as communicate to upper managers the basic functions of the machinery.

1.4.4: Intellectual Skills of Successful Managers

Conceptual skills revolve around generating ideas through creative intuitions and a comprehensive understanding of a given context.

Learning Objective

Recognize the inherent value of encouraging cooperation among teams as a management professional

Key Points

• Conceptual skills of management represent one of the three skill sets identified by Robert Katz as critical to managerial success in an organization; the other two include technical skills and human skills.
• Conceptual thinking is difficult to define but could generally be considered as the ability to formulate ideas or mental abstractions in the mind.
• While all levels of management benefit from conceptual thinking, upper management spends the most time within this frame of mind.
• Conceptual skills include the ability to forecast, think innovatively, and combine seemingly disparate information; they also include the communicative capacity to discuss and debate in pursuit of a good strategy.
• Conceptual skills are important in empowering managers in all levels of an organization to observe the operations of an organization and frame them conceptually as an aspect of that organization’s strategy, objectives, or policies.

Key Term

conceptual

Pertaining to the ability to apprehend or form an idea in the mind; the ability to create a mental abstraction.

Defining Conceptual Thinking

Conceptual skills represent one of the three skill sets identified by Robert Katz as critical to managerial success in an organization; the other two include technical skills and human skills. While each skill set is useful in different circumstances, conceptual skills tend to be most relevant in upper-level thinking and broad strategic situations (as opposed to lower-level and line management). As a result, conceptual skills are often viewed as critical success factors for upper managerial functions.

Conceptual thinking is difficult to define but could generally be considered as the ability to formulate ideas or mental abstractions in the mind. Conceptual skills primarily revolve around generating ideas, utilizing a combination of creative intuitions and a comprehensive understanding of a given context (i.e., incumbent’s industry, organizational mission and objectives, competitive dynamics, etc.). When combined with a variety of information, as well as a degree of creativity, conceptual thinking can result in new ideas, unique strategies, and differentiation.

Conceptual Skills in Upper Management

While all levels of management benefit from conceptual thinking, upper management spends the most time within this frame of mind (as opposed to thinking more technically—looking at and working with the detailed elements of a given operation or business process). Upper management is largely tasked with identifying and drafting a strategy for the broader operational and competitive approach of an organization.

This strategic planning includes generating organizational values, policies, mission statements, ethics, procedures, and objectives. Creating this complex mix of concepts to use as an organizational foundation requires a great number of conceptual skills—formulating concepts and predicting their effects in an organizational setting.

Conceptual Skills in Lower and Middle Management

While upper management may use the conceptual skill set most, middle managers and lower managers must also both understand and participate in the generation of company objectives and values. Of particular importance are the ability to communicate these critical concepts to subordinates and the ability to gather useful information to convey to upper management so that the concepts can evolve.

Collecting the results of conceptual thinking represent a feedback loop. Conceptual skills are important in empowering managers in all levels of an organization to observe the operations of an organization and frame them conceptually as an aspect of that organization’s strategy, objectives, and policies. Conceptual thinking allows for accurate and timely feedback and organizational adaptability.

1.4.5: Interpersonal Skills of Successful Managers

A manager must be both analytical and personable when it comes to managing time, resources, and personnel.

Learning Objective

Demonstrate the integral human skills that enable effective management and leadership capacity in the organizational frame

Key Points

• According to management theorist Robert Katz, management comprises three critical skill sets: technical skills, human skills, and conceptual skills.
• Human skills are broadly perceived as a combination of social, interpersonal, and leadership skills. These skills are increasingly important in business and relevant to all levels of management (lower, middle, and upper).
• Human skills differentiate a manager from a leader. A manager is simply manipulating resources to achieve a given objective, while a leader appeals to the human side of employees to generate creativity and motivation.
• Interpersonal skills and communication skills lie at the center of human-based managerial considerations. Good managers understand not only what they are trying to say but also the broader context and implications of saying it.

Key Terms

empathy

The intellectual identification of the thoughts, feelings, or state of another person.

interpersonal

Between two or more people.

According to management theorist Robert Katz, management comprises three critical skill sets: technical, human, and conceptual. The development of human skills—which could be perceived as a combination of social, interpersonal, and leadership skills—is central to the success of a manager.

Leadership

Over the years, the common definition of management has become less specific, as managerial functions can include staffing, directing, and reporting. Modern companies have fewer layers of management, as these companies instead rely on the delegation of responsibilities and authority to achieve goals. As a result, businesses often speak of “leading,” or guiding, people rather than giving instructions for every action. Leading people represents a central component of human skills.

Under this definition of management, leadership is actually a subcategory of management. Management characterizes the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible).

Human skills differentiate a manager from a leader. A manager is simply manipulating resources to achieve a given objective, while a leader appeals to the human side of employees to generate creativity and motivation.

These concepts of “manager” and “leader” can be distinguished within a team setting. A team leader who is unconcerned with team members’ needs or who has a personal agenda that is perceived to be more important than the team’s goals may be considered more of a manager than a leader, with the possible outcome of being estranged from team members. Conversely, team leaders who are admired and loyally followed are those who show concern for the team members as individuals with real needs and who place their team above their own personal agendas.

Communication

Realistically, most organizations need leaders who can view their teams analytically and objectively, evaluating inefficiencies and making unpopular choices. However, it is misleading to think that a manager has to be distant from or disliked by subordinates to execute these responsibilities. Creating a healthy environment conducive to development, criticism, and higher degrees of achievement simply requires strong human skills, particularly in the realm of communication.

The “four sides” communication model

This model provides a theoretical framework for the act of communicating, which lies at the heart of effective management. A sender communicating a message to a receiver is not simply transmitting factual information; self-image, context, charisma, and the relationship between the two people also impact the reception of the message.

Interpersonal skills and communication skills lie at the center of human-based managerial considerations. Good managers understand not only what they are trying to say but also the broader context and implications of saying it. Empathy, self-reflection, situational awareness, and charisma all play integral roles in communicating effectively and positively.

1.4.6: Experiential Learning for Managers

Experiential learning is the process of making meaning from direct experience.

Learning Objective

Define the process, role and implementation of experiential learning as it pertains to managerial skill set development

Key Points

• Experiential learning involves learning through reflection on direct actions and experiences; it is often contrasted with rote or didactic learning.
• Experiential learning does not require a teacher; instead, it relates to the process of making meaning based on individual experience.
• In this learning technique, a cycle of concrete experience, reflective observation, abstract conceptualization, and active experimentation generates realistic learning outcomes.
• Management requires a wide variety of skills that are largely intangible and not easily learned via textbooks, so experiential learning serves as a useful focal point for study.

Key Terms

genuine

Belonging to, or proceeding from the original stock; native; hence, not counterfeit, spurious, false, or adulterated; authentic; real; natural; true; pure.

Experiential

Of, related to, encountered in, or derived from an activity or event.

Defining Experiential Learning

Aristotle once said, “For the things we have to learn before we can do them, we learn by doing them.” Experiential learning is the process of making meaning from direct experience. The experience can be staged or left unstructured. David A. Kolb, an American educational theorist, helped to popularize the idea of experiential learning, drawing heavily on the work of John Dewey, Kurt Lewin, and Jean Piaget. Kolb’s work on experiential learning has contributed greatly to expanding the philosophy of experiential education.

The Process

Experiential learning involves learning through reflection on doing; it is often contrasted with rote or didactic learning. Experiential learning is related to—though not fully synonymous with—experiential education, action learning, adventure learning, free-choice learning, cooperative learning, and service learning.

Experiential learning focuses on the learning process for the individual (unlike experiential education, which focuses on the transaction between teachers and students). An example of experiential learning is going to the zoo and observing and interacting with the zoo environment, as opposed to reading about animals in a book. It is the difference between firsthand knowledge and hearing or reading about other people’s experiences.

Experiential learning does not require a teacher; instead, it draws solely upon the process of making meaning based on direct individual experience. According to Kolb, knowledge is continuously gained through both personal and environmental experiences. While gaining knowledge is an inherent process that occurs naturally, certain elements must be present for a genuine learning experience to occur. Kolb states that to gain genuine knowledge from an experience requires the following abilities:

• the learner must be willing to be actively involved in the experience
• the learner must be able to reflect on the experience
• the learner must possess and use analytic skills to conceptualize the experience
• the learner must possess decision-making and problem-solving skills in order to use the new ideas gained from the experience

Experiential learning

The process of experiential learning is cyclical, with no required starting or end point. Learning through experiences requires observation, conceptualization, and experimentation to engage the mind.

Experiential learning can be a highly effective way to learn new skills, new attitudes, or even entirely new ways of thinking. It engages the learner on a more personal level by addressing the needs and wants of the individual. It requires initiative and the ability to self-evaluate. To be truly effective, it should span goal-setting, experimenting and observing, reviewing, and planning future action.

Role in Business

Experiential learning plays an important role in business learning and managerial training. It is an integral component to many training programs, as it engages both the intellect and the senses much more comprehensively than lectures, books, or videos. For example, a computer simulation of change management can be a useful application of experiential learning, as can a board game simulating operational efficiency in a factory.

Business skills are inherently intangible, evading the capture of most textbooks without external materials to create context. Management spans a wide variety of personal capabilities and requires different skills based upon the specific role and context, making it a challenging subject to teach. Motivating others and navigating a complex organizational structure are not skills individuals can learn via textbooks; experiential learning in business may therefore serve a useful focal point for study.

This principle is particularly noticeable in business programs that utilize a cohort or group-based educational structure for students. These programs enable students to select leaders and actively practice delegation, communication, and multitasking as they work on projects. Case studies offer another effective method of capturing these complex managerial skill sets in a real-life setting. Cases place students in the shoes of managers and allow them to experience and apply the variety of skills and considerations necessary for success in a specific situation and industry.

Example

A computer simulation of change management can be a useful application of experiential learning, as can a board game simulating operational efficiency in a factory.

1.5: Current Challenges in Management

1.5.1: PESTEL: A Framework for Considering Challenges

The PESTEL framework highlights six critical factors for management to consider when approaching the general business environment.

Learning Objective

Assess opportunities and threats within the context of external factors using the PESTEL framework

Key Points

• Politics play a role in business, as there is a balance between free markets and systems of control.
• Economic factors are metrics which measure and assess the health of a given economic region or environment.
• Social factors, or demographic factors, assess the mentality of the individuals/consumers within a given market.
• Recognizing the potential technologies available to optimize internal efficiency, or to avoid letting a product or service become technologically obsolete, is a large challenge for management.
• Consumers and governments both penalize companies who have a large adverse affect on the environment (or reward those who have a positive impact).
• Understanding the varying laws and regulations in a given region of operation is critical to avoiding unnecessary legal costs.

Key Terms

gross domestic product

A fiscal measure of an entire region’s economic production over a specific time frame.

anti-trust

A set of laws that ensures no company dominates an industry (i.e. creates a monopoly).

macro environment

As pertaining to the macro-environment, these factors are indicative of the entire business environment as a whole.

Organizations are faced with a variety of external factors that provide potential opportunities and threats for short-term and long-term success in any given environment. Encompassing a macro-environmental perspective, these factors can be effectively summarized with the acronym PESTEL.

PESTEL Analysis Diagram

This chart illustrates the PESTEL factors an organization faces.

PESTEL stands for the political, economic, social, technological, environmental, and legal influences a businesses encounters as it pursues its objectives. Analyzing the entirety of the macro-environment is an extensive and complex task, but understanding the framework of basic influences allows for an organized and strategic approach to isolating each opportunity or threat. It is common to conduct a PESTEL assessment before any serious decisions are made or any large projects undertaken. Understanding each of these influencing factors is the first step to addressing them properly.

Political

Politics play a role in business, as there is a balance between free markets and systems of control. Political factors affecting business specifically revolve around taxes, import and export tariffs, environmental and labor laws, potential subsidies, and the stability of a given operational region. As global economics now supersede domestic economics for many businesses, companies must consider a number of opportunities and threats when expanding into new regions or identifying optimal areas for production, sales, or corporate headquarters.

Economic

Economic factors are metrics that measure and assess the health of a given economic microcosm within the entire global economy. These factors incorporate exchange rates, gross domestic product (GDP), consumer purchasing indices, interest rates, inflation, and a number of other indicators of economic health or direction. These indicators are critical to management, as they can reveal a good time to borrow, as well as whether an economy will be friendly to an industry where businesses fluctuate substantially with GDP or spending power, etc.

Social

Social factors could loosely be defined as a demographic analysis, where specific groups display preferences or tendencies that can be leveraged or that can threaten a given incumbent. For example, in the United States, consumers are becoming more health-conscious. This trend affords the food industry opportunities to create products that meet this social desire; as a result, candy manufacturers may want want to consider diversification. The social movement of living “green” is another example of this kind of macro-environmental opportunity or potential threat.

Technological

Technology plays a larger and larger role each year in business and will continue to do so as research and development drive new innovations. Recognizing the potential technologies available to optimize internal efficiency is a powerful asset in management. Technology also presents a number of threats, as CD-player manufacturers and Blockbuster Video can attest. These companies were hurt by “disruptive innovations” such as the MP3 player and Netflix. Keeping pace with technology and adapting accordingly are important strategies to sidestep threats and embrace opportunities.

Environmental

The impact of business upon the environment is a growing concern, and companies must consider both the social and political segments of PESTEL in conjunction with environmental factors. Consumers and governments both penalize companies that adversely affect the environment. Governments levy enormous fines upon companies that pollute beyond given specifications, and consumers are more than willing to switch brands if they perceive that a business is ignoring its environmental responsibilities. The environment can also be a source of benefit to a company, such as running water for a hydro-power plant.

Legal

The last factor in PESTEL concerns legal elements, which can also be tied to the political framework. Legal issues such as affirmative action, patent infringements (a recent example being Apple vs. Samsung), antitrust laws (see Microsoft), health regulations, and safety regulations can all significantly affect a company that does not act responsibly. Understanding this legal landscape is important for businesses that want to avoid legal pitfalls and remain within the confines of established regulations.

1.5.2: The Challenge of Globalization

Globalization is the international integration of intercultural ideas, perspectives, products/services, culture, and technology.

Learning Objective

Assess the evolution of globalization in the business world and the challenges this has created

Key Points

• Globalization is an influential modern topic that highlights the growing interdependence between different countries worldwide, necessitating managers to appropriately incorporate this trend within their strategies.
• The speed of modern globalization is often attributed to technological developments in communication and transportation, tasking managers with appropriately leveraging these technologies internally.
• Multinational companies cumulatively employ nearly half of the world’s population, creating a need for managers with a strong international awareness.
• Managers must understand that some processes can be performed universally and internationally, while others must be done in a localized fashion to adhere to each specific region’s tastes and customs.
• Critics of globalization cite the way in which it motivates an international culture over established domestic ones, as well as the negative environmental effects that result from business expansion.
• Being mindful of the potential opportunities in a global economy, along with knowledge of how to localize and sidestep the negatives in an international marketplace, can capture large value for effective managers.

Key Terms

Localizing

The act of altering a product or service to better acclimate to a local environment.

Multinational Enterprises

Businesses that operate in more than one country.

Intercultural

Representative of many different cultures simultaneously.

Example

• The 2008 financial collapse is a wonderful yet terrifying example of exactly what can go wrong and why corporate governance and ethics is of such importance to both a business and the society in which it operates. Leading up to the mortgage-backed security fallout of 2008, banks and investors began to move down the path of profitability over ethical concern. Banks eliminated certain rules and regulations (though the government did as well), allowing employees to sell mortgages that were unlikely to be repaid. Following this, upper management deemed it fit to package these risky securities into bundles and sell them as safe investments, in order to capture yet more value. Though only a simplified and small analysis of a complicated issue, this oversight in corporate management saw each echelon of leadership ignore the core responsibility of ensuring ethical standards in lieu of capital gains. Management is at fault for this oversight; it was a failure in corporate governance.

Globalization is a hot topic in the business world today, garnering enormous attention as imports and exports continue to rise with companies expanding across the global marketplace. Understanding the basic overview of the global economy underlines highly relevant managerial and business level applications that provide useful insights to modern-day managers.

In general terms, globalization is the international integration of intercultural ideas, perspectives, products/services, culture, and technology. This has resulted in large scale interdependence between countries, as specialization (arguably the root cause of globalization) allows for specific regions to leverage their natural resources and abilities to efficiently produce specific products/services with which to trade for another country’s specialization. This allows for a higher standard of living across the globe through higher efficiency, lower costs, better quality, and a more innovative and dynamic workforce.

Growth of Globalization

The ease of modern globalization is often attributed to rapid technological developments in transportation and communication. These form the central system of international exchange, allowing businesses to create meaningful relationships worldwide with minimal time investment and costs. Management is tasked with ensuring these resources are available to employees and properly leveraged to optimize the geographic reach of a business’s operations. This has led to the existence of many multinational enterprises (MNEs), who argue that survival in the newly globalized economy requires sourcing of raw materials, services, production, and labor.

From a managerial perspective, the global workplace implies an enormous amount of diversity management. Estimates of the world labor pool in 2005 noted that multinational companies employed a stunning 3 billion workers cumulatively, which is nearly half of the entire world population. As a manager, this means developing a globally aware perspective that lends itself well to the specific geographic needs, values, and customs in which the business operates. Developing this global skill set is a powerful managerial skill.

Challenges of Globalization

Managers should also be aware of the best way to approach global demographics from a business to consumer perspective, taking an international product or service and localizing it successfully. This is a significant challenge, necessitating consideration for different tastes and branding strategies during the implementation process. This chart illustrates the process of moving from an international product to a localized product step by step, making note of the element of production that can be universally applied compared to those that need a localized touch.

Globalization Process

This chart illustrates the complementary localizing and internationalizing responsibilities of a globalizing organization. The organization must place an international focus on product design, development, and QA to ensure its broad relevance while also localizing marketing to tailor its appeal to individual markets.

Managers must also be particularly aware of the current criticisms of a highly global society, particularly as it pertains to ethical and environmental considerations. A global economy is, in many ways, enforcing a global culture. This global culture is often criticized for taking the place of previously established domestic cultures (and motivating consumerism).

As a result, managers should carefully consider how to best localize products to retain cultural identity in the regions they operate. Environmental concerns are of large importance as well, as the constant energy utilization required for this interchange pollutes the environment and uses high quantities of valuable energy-creating resources. Minimizing the damage done to the environment, and offsetting it as best as possible through philanthropic giving, is not only a wise marketing move but also a critical ethical consideration.

Conclusion

Combining these points, the globalized society presents enormous opportunity for businesses. Intercultural marketplaces allow for differing demographics, larger market potential, a more diverse customer base (and therefore more diverse product offering) and a highly valuable human resource potential. On the other end of the bargain, managers are tasked with localizing products and services effectively in a way that minimizes the adverse cultural and environmental effects caused by this rapid global expansion to maintain an ethical operation.

1.5.3: The Challenge of Ethics and Governance

Ethics is at the core of corporate governance, and management must reflect accountability for their actions on a global community scale.

Learning Objective

Explain the role of management in setting strategic governance policies that conform to ethical and legal standards

Key Points

• Business itself cannot be ethical: only the managers and corporate strategists can implement ethics within the framework of the business strategy.
• Corporate ethics and shareholder desires for profitability are not always aligned, and it is the responsibility of executive management to ensure ethics supersede profitability.
• In its simplest form, corporate ethics is a legal matter. Abiding by laws protecting workers’ rights and appropriate compensation is a top priority for management.
• Corporate governance and ethics become more difficult with the indirect implications of particular practices, making it important to assess the way in which certain operations may adversely affect the community at large.
• Managers are the primary decision makers, and therefore must hold themselves accountable for the way in which a business operates and affects stakeholders, shareholders, employees, and the community at large.

Key Terms

profitability

The capacity to generate capital.

accountability

Individuals’ responsibility for their own work and acceptance of the repercussions of their actions.

Accountability

First and foremost in corporate governance is the strict adherence to business ethics on a professional level. The figure highlights the primary responsibilities of corporate managers; the upper left corner—accountability—is of particular significance. Understanding the rules and regulations in place, along with societal and personal expectations of ethical actions, is an absolutely critical and fundamental concern for all managers. The complexities and responsibilities of running a business and managing employees is the first priority for managers, as it holds the highest repercussions, both personal and fiscal, for all parties involved.

Economist Milton Friedman makes an insightful observation when he states “…the only entities who can have responsibilities are individuals…A business cannot have responsibilities.” Though this sounds like common sense, it is a fact often overlooked that the only parties capable of acting ethically are those in charge. Furthermore, ethics often contrasts with the basic premise of capitalism and the demands of shareholders: profitability. Therefore, the most difficult decisions in corporate governance—those at the ethical level—must be made through the more complex assessment of societal, corporate, and personal values.

Legal Foundations

At its most basic, ethical behavior can first be derived via the laws, rules, and regulations of the country in which a business operates. In the United States, workers are imbued with very specific rights regarding the risks they take, the hours they work, the breaks they deserve, and the benefits they are provided. Managers are the responsible parties in ensuring these are delivered to the employees in an equitable and legal way. When working over 40 hours a week, hourly employees are entitled to overtime pay. When working long shifts, employees are entitled to breaks. When working in dangerous conditions, employees are entitled to protective gear and training.

At their core, these regulations approach the fundamental dissonance alluded to above: profit-maximizing behavior as it contrasts with non-economic concerns. This dissonance is exacerbated by the global economy, which sees businesses operating within communities towards which they have no dependence or direct sensitivity. As a result, to ask the question, “What does this practice mean for the people in the area in which we operate?” is crucial in ensuring adherence to a community-first action plan.

The 2008 Financial Collapse

Complexities begin to arise as the the ethical implications within an economic system become more subtle. The 2008 financial collapse is a wonderful yet terrifying example of exactly what can go wrong and why corporate governance and ethics is of such importance to both a business and the society in which it operates. Leading up to the mortgage-backed security fallout of 2008, banks and investors began to prioritize profitability over ethics. Banks eliminated certain rules and regulations (though the government did as well), allowing employees to sell mortgages that were unlikely to be repaid. Following this, upper management deemed it fit to package these risky securities into bundles and sell them as safe investments (though they were in fact risky derivatives), in order to capture yet more value. Though this is only a simplified and small analysis of a complicated issue, it succinctly describes how corporate management saw each echelon of leadership ignore the core responsibility of ensuring ethical standards in lieu of capital gains. Management is at fault for this oversight; it was a failure in corporate governance.

The 2008 collapse is a powerful reminder that managers must keep in mind that their primary goal for shareholders is to maximize profits, while their primary goal to the community at large is to provide products without adverse effects on that community. Managing employees responsibly and putting their well-being first is an important step in this process, as is considering the wider implications of opening a new factory that pollutes or selling a highly unhealthy food product. Managers must be responsible because businesses as a whole cannot, and this responsibility towards integrity lies at the heart of management.

1.5.4: The Challenge of Diversity

Globalization demands a diverse workforce, and assimilating varying cultures, genders, ages, and dispositions is of high value.

Learning Objective

Explain the inherent value diversity generates in the competitive landscape and the challenges globalization presents

Key Points

• In the 1960s, the U.S. begin identifying trends in workplace diversity and addressed them with legislation. This evolved into a societal change that embraces diversity as both valuable and ethical.
• Diversity poses various challenges in communication, from differences in language to differences in culture. Understanding these cultural differences and what they may accidentally communicate is critical to effective communication.
• Majority cultures have a tendency to create a homogeneous environment, possibly limiting the potential diverse opinions can provide.
• Groupthink is a threat of which managers must be aware, particularly in meetings where dominant opinions steal most of the spotlight. Different perspectives are where the highest value can be captured in diverse environments.
• The ability to manage diversity, as well as refine actions to communicate accurately and intentionally, are valuable and necessary aspects of effective management.

Key Terms

groupthink

Decision making that is often characterized by a high degree of conformity.

Hegemony

The dominance of one social group over another.

The Value of Diversity

Globalization has resulted in enormous cross-cultural relationships, along with high percentages of domestic diversity. As globalization creates higher potential value in approaching diverse markets and demographics, understanding how to manage a diverse community internally is a priority for management.

Through creating a more international community and increasing variety among workforces, companies stand to benefit enormously from meaningful diversity in opinions and perspectives. This opportunity, if not properly utilized, becomes a threat as the competition grows more effective at leveraging diversity to create synergy. Therefore, staying competitive requires the creation of an effectively diverse workplace.

Ethnic diversity map

This map illustrates the level of diversity worldwide. Areas like sub-Saharan Africa tend to be more heterogenous than, for instance, states in Europe.

Stemming from various legislative initiatives in the 1960s, the concept of equality and a fair distribution of opportunity became a domestic focus in the United States. As the decades passed, this focus shifted from a legal requirement to a social expectation. Finally the idea of equality became a societal norm that recognizes both the importance and the value of diversity. This evolving outlook on a diverse workplace has ultimately resulted in the recognition and implementation of diversity management and intercultural understandings within organizations, creating stronger and more ethical business practices.

Challenges of Diversity

Despite this successful trajectory, challenges to diversity naturally occur as a result of communication (languages and values), majority hegemony, and groupthink.

Communication

Communication is at the heart of diversity management, but not necessarily for obvious reasons. Linguistic differences, while certainly a challenge, are tangible and straightforward. Learning new languages or translating materials is a reasonably effective approach to addressing these difficulties.

The more difficult challenge is the intangibles in communication that arise not from literal words but from cultural expectations. Different cultures not only speak different languages but adhere to different values, draw different assumptions, and define different actions as appropriate or inappropriate. Overlooking these cultural differences can result in miscommunication that may go unrecognized. For example, in China it is quite important to understand the concept of guanxi (face), particularly as it pertains to paying respect to guests or superiors. Overlooking these customs sends unintentional messages that can do irreversible damage.

Majority Hegemony

Majorities in businesses creating a homogeneous culture is also a substantial threat, as company culture is a direct product of the participants (employees). This can result in a business that creates and promotes a particular culture over other minority cultures, usually unintentionally as a result of numbers. This hegemony can create tension between different groups, ultimately resulting in the smaller groups moving towards the culture of the larger ones to close the dissonance, a practice called assimilation. Assimilation should be a shared responsibility, not simply assumed by those in the minority group.

Groupthink

The most substantial threat these communicative barriers and homogeneous tendencies create could loosely be defined as groupthink. Groupthink is when many people within the same organization begin to adopt similar perspectives, usually to simplify meetings and minimize discord. On the surface, this consensus sounds like a good thing. However, as the global economy requires businesses to understand varying perspectives, it also necessitates the cultivation of these diverse perspectives internally. Groupthink will often result in the assimilation of dissenting perspectives. The opportunity cost is precisely these different viewpoints. Without differences in perspective, companies have little room to expand into new demographics or innovate new solutions.

The Role of Management

Different cultural norms offer an interesting study in diversity management. Etiquette for receiving a business card in China requires accepting it with both hands and taking a full moment to read it. Following this, recipients place the card face up on the table in front of them during the meeting, referring to it when necessary. In the U.S., a strong handshake and self-introduction is a polite start to a meeting. Conversely, in Japan, it is appropriate to wait to be introduced and then bow following the greeting.

Managers must be not only aware of diversity in the workplace but also open-minded and empathetic to perspectives other than their own. Effective managers in diverse situations have a highly developed degree of cultural competence that empowers them to use careful observation skills to determine what gestures, phrases, customs and values would be most appropriate in a given circumstance. Adroit management must also work actively against groupthink, empowering everyone not only to speak but to be brave enough to go against the majority opinion. The goal for management is to ensure everyone is working to assimilate to everyone else in a balanced and effective manner that harvests differences rather than smoothing them over.t

Example

Different cultural norms offer an interesting study in diversity management. Etiquette for receiving a business card in China requires accepting it with both hands and taking a full moment to read it. Following this, recipients place the card face up on the table in front of them during the meeting, referring to it when necessary. In the U.S., a strong handshake and self-introduction is a polite start to a meeting. Conversely, in Japan, it is appropriate to wait to be introduced and then bow following the greeting.

1.5.5: The Challenge of Technology

Technology management is crucial in offsetting the risks of new technology while acquiring the operational benefits it provides.

Learning Objective

Recognize the opportunities and threats inherent in the technological landscape from a business perspective, and how to manage these

Key Points

• Managing new technology requires a thorough understanding of business technology management, which consists of four general parts.
• Managers must understand how to achieve internal efficiency by applying new technology to operational processes.
• Businesses should create strategic business units focused solely upon managing a company’s technological strategy.
• Keeping pace technologically requires extensive research and strategic analysis of the potential value of acquiring innovations.
• Implementing new technology requires retraining staff and eliminating the natural friction that results from making operational changes.
• Managers should be aware of the value in research, development, and forecasting future technological innovations to keep ahead of the competition.

Key Terms

competitive advantage

Something that places a company or a person ahead of a competing business.

evolves

Constantly changes and develops.

Synergy

The concept that a whole can derive more value than the combination of the individual parts.

Technology and Management

Managing technology is an intrinsic part of managing a business, and effectively balancing resources to optimize efficiency is an important operational objective for all managers. Varying perspectives and strategies in technology management abound, all revolving around a few simple needs being filled to move the business towards a competitive advantage. The reason behind the prioritization of technology management is that new, disruptive technology constantly threatens to result in higher efficiency of competitors. On the other hand, effectively managed technology affords businesses the opportunity to outpace the competition (see figure below).

Disruptive technology

This graph underscores the concept that technology advancement is both a constant opportunity and a constant threat.

Business Technology Management (BTM)

From a general standpoint, business technology management focuses on understanding how technology fits into an organization’s processes and structure. It provides the opportunity to streamline operations and produce higher quantities of quality information. BTM can therefore be divided into four elements:

• Process: Businesses, whether they provide products or services, always have a set of processes that define how deliverables are generated. These processes need to be assessed for efficiency and effectiveness, particularly as they allow for optimal potential modern technology.
• Organization: Businesses are constructed under the assumption of synergy. Each of the strategic business units (SBUs), or facets of the organization, complements one another to create an ability greater than the sum of its parts. Establishing an information technology (IT) department within a business that will function with upper management and throughout the ranks allows for proper implementation of BTM.
• Information:Technology evolves exponentially, often changing faster than businesses can easily monitor. Performing appropriate research and analysis of the current technological environment generates the highest return on the (often expensive) investments demanded by keeping pace technologically.
• Implementation: After a business organization has a mature IT department that understands the company processes, the department can work with an understanding of the available technologies to upgrade and implement these innovations. Implementation includes training employees, monitoring the return on investment, maintaining new technology, and eliminating friction from the necessary operational changes. Change is always complicated, and businesses benefit greatly by adopting change-management techniques when integrating new technology.

Keeping up with Technological Progress

While managers are focused upon these four aspects of BTM, they must also keep future growth and technology scaling in mind. As innovation continues to demand a central role in businesses, research and development will continue to be critical to a healthy organization. Appropriately funding research initiatives that not only keep track of new innovation but actively seek out strategic solutions creatively offers companies the best chance of survival in the global marketplace.

Managers must also realize the importance of acquiring technology talent that can keep pace with the environment. This is important for two reasons:

• The potential to uncover new competitive advantages through internal development
• The capacity to forecast up-and-coming technologies to construct an investment road map that always keeps the competition a technological step behind

Developing new technologies in-house is particularly relevant to industries on the cutting edge (e.g., semiconductors, green energy initiatives, TVs, etc.), while forecasting is more critical for the users/consumers of these industries on the business level.

Combining BTM with research and development will ensure managers are properly equipped to tackle the challenges of modern-day innovations, leveraging these capabilities to differentiate from the competition and derive stronger margins. Managers across the board must be aware of the importance of these technological developments, as well as the operational challenges in researching and implementing them.

1.5.6: The Challenge of Competition

Managers must understand a company’s competitive advantage and build a strategy that takes into account the competitive landscape.

Learning Objective

Describe competitive strategies such as low cost, differentiation, and internal competition and the role of the external competitive landscape in developing them

Key Points

• Managers must know their business’s strengths and integrate them into the appropriate strategy to remain competitive.
• Low-cost strategies are when companies sell a product or service at the lowest possible price point to stay competitive.
• Differentiation is an alternative strategy to low cost in which companies fill a specific need that is not being filled or generate a brand image that increases their value-added proposition.
• High quality is the antithesis of low cost; instead of efficiency, the strategy focuses on effectiveness, creating the best possible product to capture market share.
• Companies also compete internally, either developing naturally competitive products or battling for funding based upon unit success.
• Managers must understand all of these competitive strategies and align them with their perceived strategic advantage to stay competitive.

Key Terms

competitive advantage

Something that places a company or a person ahead of competing businesses.

differentiation

A strategy focused on creating a distinct product for a specific population.

Branding

A business’s ability to communicate a specific image, generally one that will entice consumers or add value.

Competitive Strategies

From a managerial perspective, competition generally falls into the external environment, though it can also take shape in the internal environment through rivalry between strategic business units (SBUs). For managers, understanding the external competitive landscape is a critical factor in assessing company strategies and benchmarking appropriately to ensure the competitiveness of the firm. Businesses that fail to keep pace with their rivals will eventually be overpowered and often forced to develop an exit strategy.

Avoiding the risks of competitive factors demands a strong understanding of operational efficiency (low cost), quality production, differentiation, and competitive advantage—or who you target and whether or not you have a cost or quality advantage (see figure below).

Cost vs. quality

Companies generally achieve either a cost or a quality advantage (very rarely, both). In panel A, both companies’ products have the same cost, but Company I’s product has higher value. In panel B, both companies’ products have the same value, but Company I’s product has lower cost. In panel C, Company I’s product has both higher value and lower cost (this is the rarest situation).

Low-Cost and Branding

The simplest perspective on competition is in industries where products are homogeneous (or very alike). In such a situation, companies compete directly. For example, bottled-water producers are directly involved in such a framework and thus adopt two basic competitive strategies: low-cost and branding.

Low-cost suppliers find ways to optimize their production and distribution to offer consumers the lowest possible price on one bottle of water. Low-cost suppliers often benefit largely from economies of scale. Branding, on the other hand, aims to convince the consumer that a higher price point is worth paying based upon the company’s name, reputation, or other distinguishing characteristic. For example, Dasani brand water costs more than generic store brand water, despite being essentially the same product. Commercials, aesthetic presentation, goodwill, and factors other than price may then influence a consumer’s purchasing decision.

Differentiation

Most products and services are not homogeneous, however, allowing incumbents in an industry to compete with one another by means of various competitive strategies. Differentiation is a competitive tactic wherein companies approach certain niche needs within an industry to capture a segment of the market share.

An example of differentiation might be cereal. There are hundreds of different kinds of cereals. The need being filled is sustenance: people need to eat. The producers of these cereals use differentiation to capture a share of the cereal market: some brands focus on their organic nature, others their sugary appeal, and still others on being “cool.” Branding plays an important role here as well, though assessing niche consumer needs and filling them is the principal focus.

Quality

Finally, there is the potential to compete externally based upon quality. Toyota makes both the Corolla and the Lexus, thereby targeting both ordinary automobile drivers and those in the luxury-car consumer bracket. Quality competitive strategies, while related to branding, provide a particular level of quality to capture a specific income or interest demographic. The opportunity cost of efficiency is associated with quality, which generally sees higher price points. Quality is therefore a strong antithesis to the low-cost strategy.

Internal Competition

Businesses also compete internally, an intrinsically complex issue. On the surface, internal competition involves either direct product substitutes or funding competition (among different business units). An example of internal competition is PepsiCo. Pepsi makes both colas and sports drinks, all of which sit on the shelf next to one another. When a customer sees the sports drink and chooses it over the cola, the cola has lost a sale to an internal competitor. Pepsi, however, did not lose a sale; it merely lost one segment of the business while gaining another.

With these points in mind, managers must thoroughly understand the products they are pitching and which strategy will help them avoid going toe-to-toe with other businesses with whom they cannot compete. Starting up a car manufacturing business to compete with Hyundai in the low-cost market is extremely difficult, as Hyundai has economies of scale in place that will almost always beat smaller competition on a low-cost strategy. This example illustrates an extremely important point in business: rely on strengths. Managers must understand their own competitive advantage (what they do better than the competition) to adopt the appropriate competitive strategy to gain market share and remain profitable.

1.6: Entrepreneurship

1.6.1: Introduction to Entrepreneurship

Entrepreneurship relates to the pursuit of risky and innovative business ventures to capture new opportunities.

Learning Objective

Define entrepreneurship within the context of standard activities and organizational support

Key Points

• Entrepreneurs are innovators, willing to take risks and generate new ideas to create unique and potentially profitable solutions to modern-day problems. Entrepreneurship is not so much a skill as a habitual state of mind.
• When entrepreneurship describes activities within a firm or large organization, it is referred to as intrapreneurship and may include corporate venturing, when large entities spin off organizations.
• Entrepreneurship employs what Schumpeter called the gale of creative destruction to replace wholly or partly inferior innovations across markets and industries. This destruction simultaneously creates new products and new business models.
• Entrepreneurship ranges in scale from solo projects (even involving the part-time entrepreneur) to major undertakings that create many job opportunities.
• Entrepreneurial activities can be incremental or disruptive. Incremental innovations are a number of small changes that transform process flows while disruptive innovations are entirely new approaches.

Key Terms

entrepreneurship

The art or science of innovation and risk-taking for profit in business.

entrepreneur

A person who organizes and operates a business venture and assumes much of the associated risk.

Entrepreneurs

Entrepreneurs are innovators, willing to take risks and generate new ideas to create unique and potentially profitable solutions to modern-day problems. This innovation may result in new organizations or revitalize mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is starting a new business (referred as a startup company). In recent years, the term has been extended to include social and political forms of entrepreneurial activity, which are often referred to as social entrepreneurship.

Entrepreneurial activities differ substantially depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (that can even involve the entrepreneur working only part-time) to major undertakings that create many job opportunities. Many high-value entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building the business.

Fostering Entrepreneurship

When entrepreneurship describes activities within a firm or large organization, it is referred to as intrapreneurship and may include corporate venturing, in which large entities create spin-off organizations. Corporations have become aware of the potential advantages of internal entrepreneurial activity and often have innovation specialists in their organizations to develop creative solutions for complex problems. Google has become well known for allowing all employees to dedicate 20 percent of their time to any new project of their choosing. Entrepreneurs have become an integral part of business.

Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some non-governmental organizations. More recently, the term entrepreneurship has been extended to include elements unrelated to business formation activity. Concepts of entrepreneurship as a specific mindset have emerged, resulting in initiatives like social entrepreneurship, political entrepreneurship, and knowledge entrepreneurship.

Disruptive and Incremental

Joseph Schumpeter describes an entrepreneur as “a person who is willing and able to convert a new idea or invention into a successful innovation.” Entrepreneurship employs what Schumpeter called the gale of creative destruction. Schumpeter’s idea encompasses more than single innovations, as he further explains how innovative thinking allows for a sustainable and long-term economic growth for societies that enable it. Creating new goods and new ways of doing things allows for consistent job growth, more consumption, and more economic dynamism. Innovative thinking allows for so-called disruptive innovations—innovations which make leaps and bounds over existing products. One classic example is the iPhone.

Schumpeter’s view is not the only one, however. Incremental innovation is also largely recognized as a vital entrepreneurial pursuit. The idea of incremental innovation is simple: large change is a byproduct of small innovations compounded with others. Incremental innovators find ways to improve the efficiency of established processes to drive efficiency. An example of this kind of innovation is Toyota’s just-in-time inventory management. Incremental innovations are often process-based, while disruptive innovations are usually new goods or processes themselves.

12.3: Chicago/Turabian: Citations and References – Notes and Bibliography (NB) System

12.3.1: Chicago/Turabian (NB): The Bibliography Section

Learning Objective

Arrange the bibliography in a Chicago/Turabian NB paper

Key Points

• In Chicago/Turabian style, there are two approaches to formatting your citations: the Author Date system or the Notes and Bibliography (NB) system.
• If you are using NB, you will need a bibliography at the end of your paper, in which all the sources you cite throughout the text of your paper are listed together.
• The bibliography has its own special formatting rules, including hanging indentation.
• In each citation style, formatting differs slightly based on source type; for example, you would format a citation differently if your source was an online book vs. a physical textbook.
• There are different citation styles for types of sources, including books, online resources, journals, and many others.

In Chicago/Turabian papers using the Notes and Bibliography (NB) citation system, all the sources you cite throughout the text of your paper are listed together and in full in the bibliography, which comes after the main text of your paper. (If you are using the Author Date citation system, this will be called the References section.)

Formatting the Bibliography

The top of the bibliography page, as the rest of your paper, should still include the page number in the right header. On the first line, the title of the page—“Bibliography”—should appear centered and not italicized or bolded. After the page title, leave two blank lines before your first citation.

Unlike the rest of your paper, this page should not be double-spaced: leave a blank line between each citation, but the citations themselves should not be double-spaced. Your citations should be in alphabetical order by the first word in each citation (usually the author’s last name).

Each citation should be formatted with what is called a hanging indent. This means the first line of each reference should be flush with the left margin (i.e., not indented), but the rest of that reference should be indented one inch from the left margin. Any word-processing program will let you format this automatically so you don’t have to do it by hand. (In Microsoft Word, for example, you simply highlight your citations, click on the small arrow right next to the word “Paragraph” on the home tab, and in the popup box choose “hanging indent” under the “Special” section. Click OK, and you’re done.)

Bibliography

This is an example of a correctly formatted bibliography in Chicago/Turabian NB style.

Constructing a Citation

The first step in building each individual citation is to determine the type of resource you are citing, since in each citation style formatting differs slightly based on source type. Some common types are a book, a chapter from a book, a journal article, an online book or article, an online video, a blog post, and personal communication such as an email or an interview you conducted. (You’ll notice that “website” is not a category by itself. If the information you found is online, you want to determine if you’re looking at an online book, an online article, or some other type of document.) The most important information to have for citing a source will always be the author names, the title, and the publisher information and year of publication.

As an example, let’s look in detail at the process of citing three particular sources in Chicago style: Joseph Conrad’s Heart of Darkness (i.e., a book by one author), Project Gutenberg’s online text of the same book (i.e., an online book), and an online journal article about the book.

Print Sources

Author Name

You always want to start with the author information. You should present the author information in the following order and format: the author’s last name (capitalized), a comma, the author’s first name (capitalized), the author’s middle initial (if given), and then a period:

• Conrad, Joseph.

Title of Source

Next, you should include the title of the source in title case. For a book or other standalone source, the title is italicized; otherwise it should be enclosed in quotation marks.

• Heart of Darkness.

City of Publication

Next, you want to provide the location of the publisher’s office. The location is generally a city, such as “London” or “New York, NY.”

• London:

Publisher Name

Next, provide the publisher’s name, followed by a comma:

• Everyman’s Library,

Date of Publication

After the publisher information, you provide the year in which the source was published, followed by a period.

• 1993.

All together, then, the citation looks like this:

• Conrad, Joseph. Heart of Darkness. London: Everyman’s Library, 1993.

Online Sources

Now let’s take a look at the citation for the online version of the same book, available online through the publisher Project Gutenberg (gutenberg.org). Treat the online version of a print book exactly the same as a print book, but with an indication of where you found it online.

• Conrad, Joseph. Heart of Darkness. Project Gutenberg, 2006. https://www.gutenberg.org/files/219/219-h/219-h.htm.

Journal Articles and Multiple Authors

• NooriBerzenji, Latef S., and Marwan Abdi. “The Image of the Africans in Heart of Darkness and Things Fall Apart.” Interdisciplinary Journal of Contemporary Research in Business 5, no. 4 (2013): 710–726.

Much of this citation will look familiar to you now that you know the basics. Again, we start with the author information. If the source has multiple authors, the citation rules are a little different. The first author will be listed with their surname first (Conrad, Joseph) but subsequent authors will be listed with their first names first (Joseph Conrad). Use the word “and” (not an ampersand,&”) before the last author. Here we have only two authors, but if we had five, the “and” would come before the fifth author’s last name, after the comma following the fourth author’s name.

The date of publication and title are formatted the same. Note that even though Chicago style says that the article title should not be italicized, the book titles within the article title are still italicized.

The new information here begins with citing the journal this article is from. Include the title of the journal in italicized title case (all major words capitalized, as in the title of a book):

• Interdisciplinary Journal of Contemporary Research in Business

Then include the journal volume:

• 5

If an issue number is provided in addition to the volume number, as it is here, add a comma after the volume number, the abbreviation “no.”, and the issue number:

• 5, no. 4

Next, list the year of the article’s publication in parentheses, followed by a colon:

• (2013):

Finally, list the page numbers of the article, followed by a period [note that the dash between the first and second numbers is an en-dash (–), NOT a hyphen (-) or em-dash (—)]:

• 710–726.

Multiple Publications by the Same Author

If you are referencing multiple publications by (or group of authors) that were published in the same year, there is a special rule for denoting this. You should first order those articles alphabetically by source title in the bibliography. But then, replace the author’s name in all entries except the first one with an em-dash (—).

• Achenbach, Thomas. “Bibliography of Published Studies Using the ASEBA.” Achenbach System of Empirically Based Assessment, 2012. http://www.aseba.org/asebabib.html.
• —. “School-Age (Ages 6–18) Assessments.” Achenbach System of Empirically Based Assessment, 2012. http://www.aseba.org/schoolage.html.

12.3.2: Chicago/Turabian (NB): How to Reference Different Types of Sources

Learning Objective

List the ways to cite different source types in a Chicago/Turabian bibliography

Key Points

• If you are using the Notes and Bibliography (NB) method of Chicago/Turabian style, you will need a bibliography at the end of your paper.
• In your bibliography, you will have to create a citation for every source you used in your paper; these citations will be formatted differently depending on the type of source.
• There are different citation styles for books, depending on how many authors they have.
• There are different citation styles for articles, depending on where you found them.

Key Term

bibliography

A section of a written work containing citations, not quotations, of all the sources referenced in the work.

Now that you know the different components of a book citation in Chicago/Turabian Notes and Bibliography (NB) style and how the citation should be formatted, you will be able to understand the citation formats for other source types. Here are some example citations for the most common types of resources you will use.

Book by One Author

Doyle, Arthur. The Memoirs of Sherlock Holmes. Mineola: Dover Publications, Inc., 2010.

Book by Multiple Authors

Two or More Authors

(Write out all author names.)

Dubner, Stephen, and Steven Levitt. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: Harper Perennial, 2005.

Brown, Theodore, H. Eugene Lemay, Bruce Bursten, Catherine Murphy, Patrick Woodward, and Matthew Stoltzfus. Chemistry: The Central Science. London: Prentice Hall, 2015.

Book with Author and Editor

Lovecraft, Howard Phillips. Tales. Edited by Peter Straub. New York: Library of America, 2005.

Article in a Journal with Continuous Pagination

Rottweiler, Frank, and Jacques Beauchemin. “Detroit and Sarnia: Two foes on the brink of destruction.” Canadian/American Studies Journal 54 (2012): 66–146.

Article in a Journal Paginated Separately

Rottweiler, Frank, and Jacques Beauchemin. “Detroit and Sarnia: Two foes on the brink of destruction.” Canadian/American Studies Journal 54, no. 2 (2012): 66–146.

Article in an Internet-Only Journal

Marlowe, Philip, and Sarah Spade. “Detective Work and the Benefits of Colour Versus Black and White.” Journal of Pointless Research 11, no. 2 (2001): 123–124. Accessed October 31, 2015. http://www.jpr.com/stable/detectiveworkcolour.htm.

Page on a Web Site

Pavlenko, Aneta. “Bilingual Minds, Bilingual Bodies.” Psychology Today. Last modified October 7, 2015. https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies.

Page on a Web Site, No Author Identified, No Date

“Bilingual Minds, Bilingual Bodies.” Psychology Today. Accessed October 29, 2015. https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies.

12.3.3: Chicago/Turabian (NB): Footnotes and Endnotes

Learning Objective

Arrange footnotes in Chicago/Turabian NB style

Key Points

• A footnote is when you follow a quotation, a paraphrased idea, or a piece of information that otherwise needed to be cited with a superscript number.
• An endnote is exactly like a footnote, except the note on what source was used is at the end of the paper rather than the bottom of the page.
• There are two steps to creating a footnote. First, you need to place a number in the text to tell the reader what note to look for; then, you need to create the note itself.

Key Terms

endnote

A note at the end of a paper, corresponding to a number in a text, which gives the reader citation information.

footnote

A note at the bottom of the page, corresponding to a number in a text, which gives the reader citation information.

Footnotes and Endnotes

In your paper, when you quote directly from a source in their words, or when you paraphrase someone else’s idea, you need to tell the reader what that source is so the author gets credit for their words and ideas. One method for doing this is creating a footnote.

A footnote is when you follow a quotation, a paraphrased idea, or a piece of information that otherwise needed to be cited with a superscript number (like this.)¹ Then, at the bottom of the page, you give a brief indication of where you retrieved that information. Fuller information about that source is then contained in the paper’s bibliography. Think of the footnote as telling the reader where to go in your bibliography to find the source, and the bibliography entry as telling the reader where to go in the real world to find the source.

An endnote is exactly like a footnote, except that endnotes appear all together at the end of the paper, while each footnote appears on the bottom of the same page as its superscripted number.

Creating a Footnote

There are two steps to creating a footnote. First, you need to place a number in the text to tell the reader what note to look for; then, you need to create the note itself. As an example, let’s say we are writing a paper about meerkat populations and we write the following sentences:

As of 2009, the meerkat population has increased by 20% in Eastern Botswana. “It’s thrilling,” says renowned biologist Elizabeth Khama, “The animals are truly making a comeback.”

We need to create footnotes to cite our sources.

Numbering

The first step to creating a footnote is place a number next to the statement that needs to be sourced. To do this, place the number at the end of the sentence it refers to, after all punctuation.

As of 2009, the meerkat population has increased by 20% in Eastern Botswana.¹ “It’s thrilling,” says renowned biologist Elizabeth Khama, “The animals are truly making a comeback.”²

Your first footnote of the paper should be numbered 1, your second should be 2, and so on until the end of the paper. If you are writing an exceptionally long paper, such as a doctoral thesis, numbers should restart at the beginning of every chapter.

Creating the Notes

Next, you need to create the note that the number refers to. Every number needs a note. In the note, you will have the author’s name, the title of the work, the publication information, and the page number:

1. Andrew Byrd, “The Resurgence of the Meerkat,” Southern African Ecology 32, no. 2 (2009): 221.

You only need to create a note that contains all of this information once per paper. If you cite this source again later in the paper (say, in your sixth note), you would simply write the author, title, and page number, separated by commas:

6. Byrd, “The Resurgence of the Meerkat,” 256. 

Using “Ibid.”

However, if you cite the exact same source more than once in a row, without citing any other sources in between, there is a special shorthand you can use. Chicago NB style has very specific rules for what to do in this situation. If you cite the same source multiple times in a row, simply write “Ibid.” in each note after the first—this means “this source is the same as the source in the previous note”:

1. Andrew Byrd, “The Resurgence of the Meerkat,” Southern African Ecology 32, no. 2 (2009): 221.
2. Ibid.

If you’re citing a different page of the same source, add a comma and the new page number after “Ibid.”:

1. Andrew Byrd, “The Resurgence of the Meerkat,” Southern African Ecology 32, no. 2 (2009): 221.
2. Ibid., 225.

Once you cite a different source, your use of “Ibid.” has to start over—you should not use it again until you have multiple notes in a row that cite the same source.

12.3.4: How to Reference Different Types of Sources in Footnotes

Learning Objective

List the ways to cite different source types in Chicago/Turabian footnotes

Key Points

• Footnotes are like “mini-citations” at the bottom of the page, which direct your reader to a bibliography entry.
• Different types of source require different citation information.

Key Term

Notes and Bibliography

A subset of the Chicago/Turabian citation style, which uses footnotes to cite sources in the text.

Footnotes are the preferred citation method for the Chicago/Turabian Notes and Bibliography citation style. When using footnotes, you create what is essentially a “mini-citation” at the bottom of the page. These footnotes guide the reader to the corresponding entry in your bibliography.

Different types of source require different citation information, but they always follow the form of: author, title, publication information, and then either page number or website URL (all separated by commas). And remember, this information will also be contained, in a slightly different form, in your bibliography. 

Book by a Single Author

1. Steven Pinker, How the Mind Works (New York: Norton, 1997), 223.

Book by Two to Four Authors

2. Stephen Dubner and Steven Levitt, Freakonomics (New York: William Morrow, 2005), 101.

Book by Five or More Authors

3. Theodore Brown et al., Chemistry: The Central Science (Upper Saddle River: Prentice Hall, 2005), 642.

Journal Article

4. Andrew Byrd, “The Resurgence of the Meerkat,” Southern African Ecology 32, no. 1 (2009): 221.

Electronic Journal Article

5. Andrew Byrd, “The Meerkats Have All Gone Away,” African Ecology Online 18, no. 2 (2006): 169, accessed October 31, 2015, http://www.afrecoonline.org/byrd1.htm. 

Website with Author and Publication Date

6. Cara Nelson, “The Top Three Movies of All Time,” Best Movies, last modified June 26, 1993, http://www.bestmovies.com/nelsoncara1.htm.

Website with Unknown Author and Publication Date

7. “Some Cool Movies,” Best Movies, accessed October 14, 2015, http://www.bestmovies.com/anonymous.htm.

12.4: Chicago/Turabian: Citations and References – Author–Date (AD) System

12.4.1: Chicago/Turabian (Author–Date): The References Section

In Chicago Author–Date style, the sources you cite in your paper are listed at the end in the References section.

Learning Objective

Arrange the References section in a Chicago/Turabian Author–Date paper

Key Points

• In Chicago/Turabian style, there are two ways of formatting your citations: the Author–Date system or the Notes and Bibliography system (NB). If you are using the Author–Date system, you will need a References section.
• All the sources you cite throughout the text of your paper are listed together in the References section at the end of your paper.
• The References section has its own special formatting rules, including hanging indentation.
• In each citation style, formatting differs slightly based on source type; for example, you would format a citation differently if your source was an online book vs. a physical textbook.
• There are different citation styles for types of sources, including books, online resources, journals, and many others.

In Chicago/Turabian papers using the Author–Date citation system, all the sources you cite throughout the text of your paper are listed together in full in the References section, which comes after the main text of your paper. (If you are using NB, this will be called the bibliography.)

Formatting the References Section

The top of the page, as the rest of your paper, should still include the page number in the right header. On the first line, the title of the page—“References”—should appear centered and not italicized or bolded. After the page title, leave two blank lines before your first citation. 

Unlike the rest of your paper, this page should not be double-spaced: leave a blank line between each citation, but the citations themselves should not be double-spaced. Your citations should be in alphabetical order by the first word in each citation (usually the author’s last name).

Each reference should be formatted with what is called a hanging indent. This means the first line of each reference should be flush with the left margin (i.e., not indented), but the rest of that reference should be indented one inch from the left margin. Any word-processing program will let you format this automatically so you don’t have to do it by hand. (In Microsoft Word, for example, you simply highlight your citations, click on the small arrow right next to the word “Paragraph” on the home tab, and in the popup box choose “hanging indent” under the “Special” section. Click OK, and you’re done.)

References page

This is a correctly formatted References page in Chicago/Turabian Author–Date style.

Constructing a Citation

The first step in building each individual citation is to determine the type of resource you are citing, since in each citation style formatting differs slightly based on source type. Some common types are a book, a chapter from a book, a journal article, an online book or article, an online video, a blog post, and personal communication such as an email or an interview you conducted. (You’ll notice that “website” is not a category by itself. If the information you found is online, you want to determine if you’re looking at an online book, an online article, or some other type of document.)

As an example, let’s look in detail at the process of citing three particular sources in Chicago style: Joseph Conrad’s Heart of Darkness (i.e., a book by one author), Project Gutenberg’s online text of the same book (i.e., an online book), and an online journal article about the book.

Print Sources

Author Name

You always want to start with the author information. You should present the author information in the following order and format: the author’s last name, a comma, the author’s first name, the author’s middle initial (if given), and then a period:

• Conrad, Joseph.

Title of Source

Next, you should include the title of the source in title case. For a book, the title is italicized.

• Heart of Darkness.

City of Publication

Next, you want to provide the location of the publisher’s office. The location is generally a city, such as “London” or “New York, NY.”

• London:

Publisher Name

Next, provide the publisher’s name, followed by a comma:

• Everyman’s Library,

Date of Publication

Now provide the year in which the source was published, followed by a period.

• 1993.

All together, then, the citation looks like this:

• Conrad, Joseph. Heart of Darkness. London: Everyman’s Library, 1993.

Online Sources

Now let’s take a look at the citation for the online version of the same book, available online through the publisher Project Gutenberg (gutenberg.org). Treat the online version of a print book exactly the same as a print book, but with an indication of where you found it online.

• Conrad, Joseph. Heart of Darkness. Project Gutenberg, 2006. https://www.gutenberg.org/files/219/219-h/219-h.htm.

Journal Articles and Multiple Authors

• NooriBerzenji, Latef S., and Marwan Abdi. “The Image of the Africans in Heart of Darkness and Things Fall Apart.” Interdisciplinary Journal of Contemporary Research in Business 5, no. 4 (2013): 710–726.

Much of this citation will look familiar to you now that you know the basics. Again, we start with the author information. If the source has multiple authors, the citation rules are a little different. The first author will be listed with their surname first (Conrad, Joseph) but subsequent authors will be listed with their first names first (Joseph Conrad). Use the word “and” (not an ampersand, &) before the last author. Here we have only two authors, but if we had five, the “and” would come before the fifth author’s last name, after the comma following the fourth author’s name.

The date of publication and title are formatted the same. Note that even though APA style says that the article title should not be italicized, the book titles “Heart of Darkness” and “Things Fall Apart” within the article title are still italicized.

The new information here begins with citing the journal this article is from. Include the title of the journal in italicized title case (all major words capitalized, as in the title of a book):

• Interdisciplinary Journal of Contemporary Research in Business

Then include the journal volume:

• 5

If an issue number is provided in addition to the volume number, as it is here, add a comma after the volume number, the abbreviation “no.”, and the issue number:

• 5, no. 4

Next, list the year of the article’s publication in parentheses, followed by a colon:

• (2013):

Finally, list the page numbers of the article, followed by a period [note that the dash between the first and second numbers is an en-dash (–), NOT a hyphen (-) or em-dash (—)]:

• 710–726.

Multiple Publications by the Same Author

If you are referencing multiple publications by (or group of authors) that were published in the same year, there is a special rule for denoting this. You should first order those articles alphabetically by source title in the References section. But then, replace the author’s name in all entries except the first one with an em-dash (—).

• Achenbach, Thomas. “Bibliography of Published Studies Using the ASEBA.” Achenbach System of Empirically Based Assessment, 2012. http://www.aseba.org/asebabib.html.
• —. “School-Age (Ages 6–18) Assessments.” Achenbach System of Empirically Based Assessment, 2012. http://www.aseba.org/schoolage.html.

12.4.2: Chicago/Turabian (Author–Date): How to Reference Different Types of Sources

In Chicago/Turabian style, there are different formats for citing sources at the end of your paper depending on the type of source.

Learning Objective

List the ways to cite different source types in Chicago/Turabian Author–Date style

Key Points

• If you are using the Author–Date method of Chicago/Turabian style, you will need a References section at the end of your paper.
• In your References section, you will have to create a citation for every source you used in your paper; these citations will be formatted differently depending on the source type.
• There are different citation styles for books, depending on how many authors they have.
• There are different citation styles for articles, depending on where you found them.
• There are ways to format sources that are not books or articles.

Key Term

Author–Date

A subset of the Chicago/Turabian citation style that uses in-text citations and a References page at the end.

Now that you know the different components of a book citation in Chicago/Turabian Author–Date style and how they should be formatted, you will be able to understand the citation formats for other source types. Here are some example citations for the most common types of resources you will use. These are how your citations will be formatted on your References page at the end of your Author–Date style paper.

Book by One Author

Doyle, Arthur. The Memoirs of Sherlock Holmes. Mineola: Dover Publications, Inc., 2010.

Book by Multiple Authors

Two or More Authors

(Write out all author names.)

Dubner, Stephen, and Steven Levitt. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: Harper Perennial, 2005.

Brown, Theodore, H. Eugene Lemay, Bruce Bursten, Catherine Murphy, Patrick Woodward, and Matthew Stoltzfus. Chemistry: The Central Science. London: Prentice Hall, 2015.

Book with Author and Editor

Lovecraft, Howard Phillips. Tales. Edited by Peter Straub. New York: Library of America, 2005.

Article in a Journal with Continuous Pagination

Rottweiler, Frank, and Jacques Beauchemin. “Detroit and Sarnia: Two Foes on the Brink of Destruction.” Canadian/American Studies Journal 54 (2012): 66–146.

Article in a Journal Paginated Separately

Rottweiler, Frank, and Jacques Beauchemin. “Detroit and Sarnia: Two Foes on the Brink of Destruction.” Canadian/American Studies Journal 54, no. 2 (2012): 66–146.

Article in an Internet-Only Journal

Marlowe, Philip, and Sarah Spade. “Detective Work and the Benefits of Colour Versus Black and White.” Journal of Pointless Research 11, no. 2 (2001): 123–124. Accessed October 31, 2015. http://www.jpr.com/stable/detectiveworkcolour.htm.

Page on a Web Site

Pavlenko, Aneta. “Bilingual Minds, Bilingual Bodies.” Psychology Today. Last modified October 7, 2015. https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies.

Page on a Web Site, No Author Identified, No Date

“Bilingual Minds, Bilingual Bodies.” Psychology Today. Accessed October 29, 2015. https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies.

12.4.3: Chicago/Turabian (Author–Date): In-Text References and Parentheticals

In Chicago/Turabian Author–Date style, in-text citations follow strict formatting rules.

Learning Objective

Arrange in-text citations in Chicago/Turabian Author–Date style

Key Points

• In-text citations are where you tell the reader, within the text of your paper, the author’s name and the date the source was published.
• The correct formatting for an in-text citation varies depending on how many authors created the source being cited.
• Formatting also varies depending on whether you cite the same source more than once, or whether you cite multiple works by the same author.

Key Term

parenthetical

A word or phrase within parentheses.

In your paper, when you quote directly from a source in the author’s words, or when you paraphrase someone else’s idea, you need to tell the reader where the words and ideas comes from so the original author gets credit. When you do this within the text  the reader the author’s name and the date the source was published in the text of your paper, this is called an in-text citation.

The Chicago/Turabian citation style uses in-text citations only in its Author–Date method, which is generally used for social science papers and is explained below. If your professor asks you to cite sources with footnotes and bibliography rather than in-text citations, make sure you use the Notes and Bibliography (NB) method rather than the Author–Date method described here.

Source by a Single Author

To cite this type of reference in the text, you should use what is known as a parenthetical—citation information enclosed in parentheses—at the end of the relevant sentence. The parenthetical should include the author’s last name (with no first or middle initial) followed by the year the source was published. If you’re citing a direct quote, you also need to include the page number after a comma. For example:

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling 2005).
• Social representations theory “proposes a new hypothesis…” (Pauling 2005, 113).

If you choose, you can integrate the author’s name into the sentence itself—this is known as a “signal phrase”—and provide just the year in parentheses:

• Pauling (2005) posits that …

Source by Two or Three Authors

Authors should be presented in the order in which they are listed on the published article. If you include the authors’ names in the parenthetical, use the word “and” between the two names. For example:

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling and Liu 2005).

You may still choose to use a signal phrase instead, but make sure you keep both authors in it:

• Pauling and Liu (2005) posit that …

Source by Four or More Authors

For an article with more than four authors, the first time you cite the article in the text of your paper, you should use only the first author’s name followed by “et al.” and the year of publication. (“Et al.” is short for “et alia,” which means “and other people” in Latin—much like “etc.” is short for “et cetera,” which means “and other things” in Latin.)

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling et al. 2005).

Using a signal phrase:

• Pauling et al. (2005) posit …

Citing Multiple Publications by Different Authors

If you need to cite multiple publications by different authors in the same sentence, you should list the multiple sources in alphabetical order by author and use a semicolon to separate them.

• … majority (Alford 1995; Pauling 2004; Sirkis 2003).

If within this citation you also have multiple sources by the same author, after that author’s name, separate the multiple dates of publication with a comma, and order them chronologically (earliest to latest).

• … majority (Alford 1995; Pauling 2004, 2005; Sirkis 2003).

Citing Multiple Publications by the Same Author

If you need to cite multiple publications by the same author within a sentence, you use a comma to separate the years of publication in chronological order (oldest to most recent).

• … majority (Pauling 2004, 2005).

Using a signal phrase:

• Pauling (2004, 2005) suggests that …

11.3: APA: Empirical Research Papers

11.3.1: APA: Reporting Statistics

Learning Objective

Identify correctly formatted statistics according to APA style

Key Points

• Since experimental papers in the social sciences are usually written in APA style, you will need to know how to properly talk about statistics in the text of your paper.
• Never never report a statistic in the text of your paper that is already evident in a table or figure, or report a statistic in a table which is reported in your text.
• Always italicize statistical variables.
• Summarize important statistical relationships in clear, plain English.

Key Term

statistic

A numerical figure from experimental data.

Since experimental papers in the social sciences are usually written in APA style, you will need to know how to properly talk about statistics in the text of your paper.

General Rules

You should never mention a statistic in the text of your paper that is already evident in a table or figure, and vice versa.

Be sure to italicize statistical variables (e.g., p-value; t-test, F-test).

Clarity

To place the focus on the meaning of your statistical tests and their relevance to your overall argument, you should summarize each statistical relationship in clear, plain English. Also, include the important values in parentheses, and the test information and significance at the end of the sentence. For example, rather than writing this:

• The mean anxiety score for women was 43.5, and the mean anxiety score for men was 47.9. This difference was significant; a t-test found a t-score of 2.34, and the p-value was 0.01.

You should write this:

• In terms of their scores on the Anxiety Scale, women
  were found to be significantly more anxious than men
  , 

(
 stands for “mean”—meaning average—and
stands for “standard deviation.”)

Reporting statistics

This figure shows the proper way to report statistics in an APA-style paper.

11.3.2: APA: Tables and Figures

Learning Objective

Arrange tables and figures in APA style

Key Points

• APA specifies two methods for presenting information visually: tables and figures.
• A table is a chart that presents numerical information in a grid format.
• A figure, by the APA definition, is generally a graph or visual representation of a process; in rare cases it can also be a photograph.
• Using a table or a figure as a visual aid can help you strengthen a claim you’re making.

When you need to summarize quantitative data, words can only go so far. Sometimes, using a chart, graph, or other visual representation can be useful in proving your point. However, it’s important to make sure you incorporate this extra information in a way that is easy to understand and in line with the conventions of APA style.

APA specifies two methods for representing information visually: tables and figures.

Tables

A table is a chart that presents numerical information in a grid format. APA style recommends that a table be used only for particularly complex data or large data sets; if your table has only one or two columns, you should summarize the information within the text of a paragraph instead.

In APA style, you must include each table on its own separate page at the very end of your paper, after the References section. (Note that these pages should still include the running head and page number.) Because tables are in a separate section, you must refer to each one in the text of your paper by its number (e.g., “Table 1”) so the reader knows where it is relevant.

Formatting

Format your tables as simply as possible. Do not use bold or italicized text (unless you are talking about a variable or statistical test that requires such formatting).

APA style has strict rules about how to format the borders, or the lines, of your table. Generally, for simpler tables, you should have only three horizontal lines: one immediately above and one immediately below the column headings, and one at the bottom of the table.

Simple table

This table is properly formatted in APA style, using only three horizontal borders.

If you have a more complex table—e.g., one that has multiple layers of column headers or sections of data—you may sparingly use additional horizontal lines as visual separators.

Complicated table

This more complicated table is properly formatted in APA style; it uses more than three horizontal borders to clearly separate the different sections.

Title and Source

Every table should appear flush with the left margin. Immediately above the table, provide its number (e.g., “Table 1”), and then on the next line provide a short but descriptive title in italicized title case.

If your table includes any abbreviations that need defining, or statistics whose significance levels need noting, immediately below the table, write the word “Note” in italics, followed by a colon, and then provide the needed explanation.

If your table comes from another source, you need to add that source to your References section. Using the same formatting, you should also place that information immediately below your table, following the word “Source” in italics.

Figures

In APA style, you must also include each figure on its own separate page at the end of your paper; this section of figures should appear after the section of tables. (Note that these pages should also still include the running head and page number.)

Because figures appear separate from the body of your paper, you must refer to each one in the text of your paper by its number (e.g., “Figure 1”) so the reader knows where it is relevant.

Formatting

APA style has strict rules about how to create and format your figures.

• Any text in a figure (e.g., axis labels, legend labels) should be in a sans-serif font, between 8pt and 14pt in size.
• One-column figures (e.g., a graph with a single panel) should be between 2 and 3.25 inches in width.
• Two-column figures (e.g., a graph with two panels) should be between 4.25 and 6.875 inches in width.

Single-panel figure

This is a single-panel figure properly formatted in APA style.

Title and Caption

Every figure should appear flush with the left margin. Immediately below the figure, provide its number (e.g., “Figure 1”) in italics, followed by a period, followed by a brief but descriptive title (called a “figure caption”) in sentence case. For example:

• Figure 1. Average self-reported anxiety of 18- to 24-year-old women in response to perceived social slight.

If your figure includes any abbreviations that need defining, or statistics whose significance levels need noting, include this information in the figure caption. For example:

• Figure 1. Average self-reported anxiety of 18- to 24-year-old women in response to perceived social slight. 

The title of the figure should not appear in the figure itself—it should appear only in the caption beneath the figure.

Three-panel figure

This is a three-panel figure properly formatted in APA style.

11.4: APA: Citations and References

11.4.1: APA: The References Section

In APA style, the sources you cite in your paper are listed all together at the end, in the References section.

Learning Objective

Arrange the References section in APA style

Key Points

• In APA style, all the sources you cite throughout the text of your paper are listed together in the References section.
• The References section has its own special formatting rules, including double-spaced text and hanging indentation.
• How you should format each individual citation differs differs slightly based on source type; there are different citation styles for books, online resources, journals, and many others.

Key Term

hanging indent

A formatting style for citations in APA Reference pages in which every line except the first is an inch away from the left margin.

In APA style, all the sources you cite throughout the text of your paper are listed together, and more fully, in the References section, which comes after the main text of your paper.

Formatting the References Section

The top of the page, as the rest of your paper, should still include the running header on the left and the page number on the right. On the first line, the title of the page—“References”—should appear centered and not italicized or bolded. (As is the case with the “Abstract” page title, this does not count as an actual heading, so it is not formatted per the heading guidelines.) And, like the rest of your paper, this page should also be double-spaced.

Starting on the next line after the page title, your references should be listed in alphabetical order by author. Multiple sources by the same author should be listed chronologically by year within the same group.

Each reference should be formatted with what is called a hanging indent. This means the first line of each reference should be flush with the left margin (i.e., not indented), but the rest of that reference should be indented one inch from the left margin. Any word-processing program will let you format this automatically so you don’t have to do it by hand. (In Microsoft Word, for example, you simply highlight your citations, click on the small arrow right next to the word “Paragraph” on the home tab, and in the popup box choose “hanging indent” under the “Special” section. Click OK, and you’re done.)

References

This is an example of the first page of a References section properly formatted in APA style.

Constructing a Citation

The first step in building each individual citation is to determine the type of resource you are citing, since in each citation style formatting differs slightly based on source type. Some common types are a book, a chapter from a book, a journal article, an online book or article, an online video, a blog post, and personal communication such as an email or an interview you conducted. (You’ll notice that “website” is not a category by itself. If the information you found is online, you want to determine if you’re looking at an online book, an online article, or some other type of document.)

As an example, let’s look in detail at the process of citing three particular sources in APA style: Joseph Conrad’s Heart of Darkness (i.e., a book by one author), Project Gutenberg’s online text of the same book (i.e., an online book), and an online journal article about the book.

Print Sources

Author Name

You always want to start with the author information. You should present the author information in the following order and format: the author’s last name (capitalized), a comma, the author’s first initial, then a period, and finally their middle initial and period (if given):

• Conrad, J.

Date of Publication

After the author’s name, you provide the year, inside parentheses, in which the source was published, followed by a period. It may look odd, but make sure your period is outside the parentheses.

• (1993).

Title of Source

Next, you should include the title of the source in sentence case. For a book, the title is italicized.

• Heart of darkness.

City of Publication

Next, you want to provide the location of the publisher’s office. The location is generally a city, such as “London” or “New York, NY.”

• London:

Publisher Name

Next, provide the publisher’s name, followed by a period:

• Everyman’s Library.

All together, then, the citation looks like this:

• Conrad, J. (1993). Heart of darkness. London: Everyman’s Library.

Online Sources

Now let’s take a look at the citation for the online version of the same book, available online through Project Gutenberg (gutenberg.org). Much of the citation is the same:

• Conrad, J. (2006). Heart of darkness. Project Gutenberg. Retrieved from https://www.gutenberg.org/files/219/219-h/219-h.htm

Journal Articles and Multiple Authors

• NooriBerzenji, L. S., & Abdi, M. (2013). The image of the Africans in Heart of Darkness and Things Fall Apart. Interdisciplinary Journal of Contemporary Research in Business, 5(4), 710–726.

Much of this citation will look familiar to you now that you know the basics. Again, we start with the author information. This article has multiple authors, so we list them in the same order in which they are listed in the source, and in the same format as before (last name, first initial, middle initial), separated by commas. The last author should also have an “and” sign, or ampersand (&), before it. Here we have only two authors, but if we had five, the ampersand would come before the fifth author’s last name, after the comma following the fourth author’s name.

The date of publication and title are formatted the same. Note that even though APA style says that the article title should not be italicized, the book titles “Heart of Darkness” and “Things Fall Apart” within the article title are still italicized.

The new information here begins with citing the journal this article is from. Include the title of the journal in italicized title case (all major words capitalized, as in the title of a book), followed by a comma:

• Interdisciplinary Journal of Contemporary Research in Business,

Then include the journal volume, also italicized:

• 5

If the particular journal you’re citing lists an issue number in addition to the volume number, as this one does, include it in parentheses immediately after the volume, and do not italicize it. Then follow it with a comma.

• 5(4),

Finally, list the page numbers of the article, followed by a period [note that the dash between the first and second numbers is an en-dash (–), not a hyphen (-) or em-dash (—)]:

• 710–726.

Multiple Publications by the Same Author in the Same Year

If you are referencing multiple publications by the same author (or group of authors) that were published in the same year, there is a special rule for denoting this. You should first order those articles alphabetically by source title in the References section. Then, append a lowercase letter in alphabetical order to the end of each year of publication:

• Achenbach, T. M. (2012a). Bibliography of published studies using the ASEBA. Retrieved March 25, 2012, from Achenbach System of Empirically Based Assessment: http://www.aseba.org/asebabib.html
• Achenbach, T. M. (2012b). School-age (ages 6–18) assessments. Retrieved March 18, 2012, from Achenbach System of Empirically Based Assessment: http://www.aseba.org/schoolage.html

A Note on Capitalization

In the guidelines for citing different types of sources in APA style, you will notice several different patterns in capitalizing source titles. A work that stands on its own—a book, a painting, a film, etc.—should be written in italicized title case (every major word capitalized). A source that is part of a larger work—a chapter in an anthology, an article in a journal, a web page, etc.—should be written in sentence case and not italicized. (Recall that sentence means that just the first word and proper nouns are capitalized, as well as the first word after a colon, if there are any). As an example, compare the citations of Heart of Darkness and the NooriBerzenji & Abdi (2013) article.

11.4.2: APA: How to Reference Different Types of Sources

In APA style, there are different formats for citing sources at the end of your paper depending on the type of source.

Learning Objective

List the ways to cite different source types in APA style

Key Points

• In your References section, you will have to create a citation for every source you used in your paper; these citations will be formatted differently depending on the source type.
• There are different citation styles for books, depending on how many authors they have.
• There are different citation styles for articles, depending on where you found them.
• There are ways to format sources that are not books or articles.

Key Term

ellipsis

A punctuation mark consisting of three periods in a row, used to indicate an omission, a pause, or additional, unmentioned list items.

Now that you know the different components of a book citation in APA style and how they should be formatted, you will be able to understand the citation formats for other source types. Here are some example citations for the most common types of resources you will use.

Book by One Author

Sherman, R. D. (1956). The terrifying future: Contemplating color television. San Diego: Halstead.

Book by Multiple Authors

Two Authors

Kurosawa, J., & Armistead, Q. (1972). Hairball: An intensive peek behind the surface of an enigma. Hamilton, ON: McMaster University Press.

Three to Seven Authors

Brown, T. E., LeMay, H. E., Bursten, B. E., Murphy, C., & Woodward, P. (2011). Chemistry: The central science. London: Prentice Hall.

More than Seven Authors

List the first six authors, then an ellipsis, then the final author.

Hughes-Hallett, D., Gleason, A. M., McCallum, W. G., Lomen, D. O., Lovelock, D., Tecosky-Feldman, J., … Lock, P. F. (2008). Calculus: Single variable. Hoboken, NJ: Wiley.

Article in an Edited Book

Stanz, R. F. (1983). Practical methods for the apprehension and sustained containment of supernatural entities. In G. L. Yeager (Ed.), Paranormal and occult studies: Case studies in application (pp. 42–64). London, England: OtherWorld Books.

Article in a Journal with Continuous Pagination

Rottweiler, F. T., & Beauchemin, J. L. (1987). Detroit and Sarnia: Two foes on the brink of destruction. Canadian/American Studies Journal, 54. 66–146.

Article in a Journal Paginated Separately

Crackton, P. (1987). The Loonie: God’s long-awaited gift to colourful pocket change? Canadian Change, 64(7), 34–37.

Article in an Internet-Only Journal

Blofeld, H. V. (1994, March 1). Expressing oneself through Persian cats and modern architecture. Felines & Felons, 4, Article 0046g. Retrieved October 3, 1999, from http://journals.f+f.org/spectre/vblofeld-0046g.html

Page on a Web Site

Pavlenko, A. (2015, October 7). Bilingual minds, bilingual bodies. Psychology Today. Retrieved from https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies

Page on a Web Site, No Author Identified, No Date

Bilingual minds, bilingual bodies. (n.d.). Psychology Today. Retrieved from https://www.psychologytoday.com/blog/life-bilingual/201510/bilingual-minds-bilingual-bodies

11.4.3: APA: In-Text Citations and Parentheticals

In APA style, there are different formats for citing sources in text depending on the type of source.

Learning Objective

Arrange in-text citations in APA style

Key Points

• In-text citations are where you tell the reader, within the text of your paper, the author’s name and the date the source was published.
• The correct formatting for an in-text citation varies depending on how many authors created the work being cited.
• Formatting also varies depending on whether you cite the same source more than once, or whether you cite multiple works by the same author.

Key Term

in-text citation

Giving the name and year or other identifying information of the author of a source within the text of a paper.

In your paper, when you quote directly from a source in their words, or when you paraphrase someone else’s idea, you need to tell the reader what that source is so the author gets credit for their words and ideas. When you tell the reader the author’s name and the date the source was published in the text of your paper, this is called an in-text citation.

In-text citations

These in-text citations are properly formatted in APA style.

Source by a Single Author

To cite this type of reference in the text, you should use what is known as a parenthetical—the citation information enclosed in parentheses—at the end of the relevant sentence. The parenthetical should include the author’s last name (with no first or middle initial), followed by a comma, followed by the year the source was published. If you’re citing a direct quote, you also need to include the page number. For example:

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling, 2005).
• Social representations theory “proposes a new hypothesis …” (Pauling, 2005, p. 113).

If you choose, you can integrate the author’s name into the sentence itself—this is known as a “signal phrase”—and provide just the year in parentheses:

• Pauling (2005) posits that …

Source by Two Authors

Authors should be presented in the order in which they are listed on the published article. If you include the authors’ names in the parenthetical, use an ampersand (&) between the two names. For example:

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling & Liu, 2005).

If you choose to use a signal phrase instead, use the word “and” rather than an ampersand:

• Pauling and Liu (2005) posit that …

Source by Three to Five Authors

For an article with three to five authors, the first time you cite the article in the text of your paper, you should include the names of all the authors (in the same order in which they appear in the article) followed by the year of publication. After that, to save space and to make your paper easier to read, you should use only the first author’s name followed by “et al.” and the year of publication. (“Et al.” is short for “et alia,” which means “and other people” in Latin—much like “etc.” is short for “et cetera,” which means “and other things” in Latin.)

First Instance

• Social representations theory posits that reified scientific knowledge that exists at the boundaries of a given society will be interpreted in meaningful and often simplified forms by the majority (Pauling, Liu, & Guo, 2005).

Using a signal phrase:

• Pauling, Liu, and Guo (2005) posit …

Subsequent Instances in the Same Document

• (Pauling et al., 2005)

Using a signal phrase:

• Pauling, et al. (2005) posit …

Source by More than Five Authors

For an article with more than five authors, include only the first author’s name followed by “et al.” and the year of publication in each in-text citation.

• (Hughes-Hallett et al., 2008)

Using a signal phrase:

• Hughes-Hallett et al. (2008) claim that …

Multiple Publications by Different Authors

If you need to cite multiple publications by different authors in the same sentence, you should list the multiple sources in alphabetical order by author and use a semicolon to separate them.

• … majority (Alford, 1995; Pauling, 2004; Sirkis, 2003).

If within this citation you also have multiple sources by the same author, after that author’s name separate the multiple dates of publication with a semicolon and order them chronologically (earliest to latest).

• … majority (Alford, 1995; Pauling, 2004; 2005; Sirkis, 2003).

Multiple Publications by the Same Author

If an author has multiple publications which you wish to cite in the same sentence, you use a semi colon (;) to separate the years of publication in chronological order (oldest to most recent).

• … majority (Pauling, 2004; 2005).

Using a signal phrase:

• Pauling (2004; 2005) suggests that …

Multiple Publications by the Same Author/s in the Same Year

If multiple publications by the same author (or group of authors) were published in the same year, there is a special rule for denoting this. In the References section, you would order those articles alphabetically by source title, and then append a lowercase letter in alphabetical order to the end of the year of publication. For example, if you had two publications by Pauling in 2004, the first would be marked as (2004a) and the second as (2004b). You would then include these lowercase letters in your in-text citations as well:

• … majority (Pauling, 2004a; 2004b).

9.3: Writing in the Natural and Social Sciences: The Research Paper and the IMRAD Model

9.3.1: Principles of Writing in the Sciences

Learning Objective

List the stylistic elements of a successful scientific paper

Key Points

• Academic writing in the sciences addresses new scientific developments and clarifications of scientific questions, most frequently in the form of a lab report, journal article, or literature review. The natural sciences include fields such as astronomy, biology, chemistry, and physics; the social sciences include anthropology, economics, linguistics, political science, sociology, and psychology.
• Scientific papers commonly follow the IMRAD model, which stands for introduction, method, results, and discussion.
• The introduction should describe elements such as the paper’s motivation, aim, problem, tested hypothesis, novel contributions, background materials, and an overview of the subsequent material.
• The methods section should cover the writer’s assumptions, system model, simulation model, and performance measures. For an original study, when, where, and how the study was conducted, what materials were used, and who was included in the study groups should all be included.
• In describing the results, the writer should include any empirical data, charts, and plots that convey the answer to the research question, and state whether the research hypothesis was proven or not proven.
• The discussion section should analyze the results, state why they matter, contextualize them in relation to existing research, and suggest the implications for future research.

Key Terms

objectivity

The ability to perceive a subject without being influenced by personal biases or emotions.

bias

A definite opinion or position on a subject.

lab report

A step-by-step explanation of the materials, methods, data, results, analysis,
conclusions, and references of an experiment.

Scientific research papers report new discoveries, applying evidence to answer questions and identify patterns. Writing in these disciplines often takes the form of peer-reviewed journal articles, literature reviews, grant proposals, case studies, and lab reports.

For example, in an environmental-science lab report, a student might analyze research results to address or clarify a particular scientific development or question:

“This study aims to identify levels of chlorine and phosphorus compounds in a three-mile stretch of the Columbia River, which is an area notable for salmon runs. An analysis of samples taken over a two-year period from various locations within the three-mile stretch revealed the persistence of high levels of phosphorous and chlorine compounds. In the study, we examine the relationship between salmon population and the persistence of these compounds.”

Scientific papers require a great deal of preliminary work, including research, field work, and experimentation. Translating that work into writing can be difficult, but academic conventions provide a common template for communicating findings clearly and effectively.

General Style

Writing in the sciences seeks to explain complex phenomena in clear, straightforward prose that minimizes authorial bias. It also includes elements of classical argument, since scientific papers are expected to contextualize, analyze, and interpret the information at hand.

Precision of Language

Lab reports, case studies, and other types of scientific writing must be precise in order to provide results that can be tested and reproduced.

Strive to use simple words and sentences. Some students try to make their work sound more intellectual by using obscure words and long, elaborate sentences. In reality, the academy values precise words and detailed descriptions that are still understandable to a lay audience. Don’t try to mimic the stereotype of dense, convoluted academic writing. Instead, write as simply and clearly as possible. Precision is a key component of clarity. 

In the sciences, precision has two main applications: using concrete examples, and using clear language to describe them. Defining your parameters accurately is essential. Don’t generalize—provide exact times, measurements, quantities, and other relevant data whenever possible. Using precise, straightforward language to describe your work is also vital. This is not the time or place for flashy vocabulary words or rhetorical flourishes. Style, however, is still important: writing about the sciences doesn’t give you a pass to write sloppily.

Objectivity

The sciences aim for objectivity at every stage, from the experimental procedures to the language used in the write-up. Science writing must convince its audience that its offering an important, innovative contribution; as a result, it has an argumentative character. Combining objectivity and argumentative writing can be challenging. Scientific objectivity has two requirements: your hypothesis must be testable, and your results must be reproducible.

The importance of objectivity in the sciences limits writers’ ability to use persuasive rhetoric. However, it is still necessary to make a strong case for the importance, relevance, and applicability of your research. Argumentative writing does have a place in scientific papers, but its role is limited. You may use persuasive language in the abstract, introduction, literature review, discussion of results, and conclusion, but avoid using it when you describe your methods and present your results.

Transitions

Many students struggle to transition from one topic to the next. Transitions are well worth mastering—they are the glue that holds your ideas together. Never assume that the reader will correctly guess the relationships between different subtopics; it is your responsibility to explain these connections.

Scientific Reasoning

Keeping your chosen model in mind while you write can help ensure that your decisions and conclusions are logically consistent. Also, watch out for logic traps such as bias and faulty causality. Researchers must account for their own biases, or personal preferences, prejudices, and preconceived notions. These may include cognitive bias (irrational thinking), cultural bias (the imposition of one’s own cultural standards upon research subjects), and sampling bias (the tendency during sample collection to include some members of the intended sample more readily than others).

9.3.2: Overview of the IMRAD Model

Learning Objective

Define each element of the IMRAD structure

Key Points

• The IMRAD model is the conventional structural approach to academic writing in the sciences. The IMRAD model has four parts: introduction, methods, results, and discussion.

• The literature review provides an overview of relevant research in your discipline. This may be included as part of the introduction, or it may stand as its own section.

• The methods section should explain how you collected and evaluated your data.
• If your project conducts an experiment or an original data analysis, you should include a separate section that reports your results.
• The discussion section should analyze your results without reporting any new findings.

Key Terms

quantitative

Of research methods that rely on objective measurements and data analysis.

literature review

A synthesis of the critical points of current knowledge in a given field, which includes significant findings as well as theoretical and methodological contributions to a particular topic.

IMRAD

An acronym for Introduction, Methods, Results, and Discussion—the conventional structure of a scientific paper.

result

The discovery (or absence of discovery) that arises from the scientific method of investigation.

qualitative

Of research methods that create a more subjective understanding by studying a subject’s defining qualities and character.

In the natural and social sciences, the format for the body of the paper varies depending on the discipline, audience, and research methods. Generally, the body of the paper contains an introduction, a methods section, results, and discussion. This method is called IMRAD for short. 

These sections are usually separate, although sometimes the results are combined with the methods. However, many instructors prefer that students maintain these divisions, since they are still learning the conventions of writing in their discipline. Most scientific journals prefer the IMRAD format, or variations of it, and even recommend that writers designate the four elements with uniform title headings.  

Try to stay true to each section’s stated purpose. You can cite relevant sources in the methods, discussion, and conclusion sections, but again, save the lengthy discussion of those sources for the introduction or literature review. The results section should describe your results without discussing their significance, while the discussion section should analyze your results without reporting any new findings. Think of each section as a course served at a fancy dinner—don’t pour the soup into the salad or add leftover scraps from the entree to the dessert!

Introduction

In the first section of your paper, make a case for your new research. Explain to your reader why you chose to research this topic, problem, or issue, and why such research is needed. Explain any “gaps” in the current research on this topic, and explain how your research contributes to closing that gap.

Literature Review

While not always required, the literature review can be an important part of your introduction. It provides an overview of relevant research in your discipline. Its goal is to provide a scholarly context for your research question, and explain how your own research fits into that context. A literature review is not merely a summary of the sources you’ve found for your paper—it should synthesize the information gathered from those sources in order to demonstrate that work still needs to be done.

Explain your selection criteria early on—why did you choose each of your sources? The literature review should only refer to work that affects your particular question. Seek out a diverse range of sources. Look at primary-research reports and data sets in addition to secondary or analytical sources.

Methods

This section should explain how you collected and evaluated your data. Use the past tense, and use precise language. Explain why you chose your methods and how they compare to the standard practices in your discipline. Address potential problems with your methodology, and discuss how you dealt with these problems. Classify your methods. Are they empirical or interpretive? Quantitative or qualitative? 

After you support your methods of data collection or creation, defend the framework you use to analyze or interpret the data. What theoretical assumptions do you rely on?

After you provide a rationale for your methodology, explain your process in detail. If you are vague or unclear in describing your methods, your reader will have reason to doubt your results. Furthermore, scientific research should present reproducible (i.e., repeatable) results. It will be impossible for other researchers to recreate your results if they can’t determine exactly what you did. Include information about your population, sample frame, sample method, sample size, data-collection method, and data processing and analysis.

Results

When you describe your findings, do so in the past tense, using impartial language, with no attempt to analyze the significance of the findings. You will analyze your results in the next section. However, it is perfectly acceptable to make observations about your findings. For instance, if there was an unexpectedly large gap between two data points, you should mention that the gap is unusual, but save your speculations about the reasons for the gap for the discussion section. If you find some results that don’t support your hypothesis, don’t omit them. Report incongruous results, and then address them in the discussion section. If you find that you need more background information to provide context for your results, don’t include it in the results section—go back and add it to your introduction.

Discussion

This is the place to analyze your results and explain their significance—namely, how they support (or do not support) your hypothesis. Identify patterns in the data, and explain how they correlate with what is known in the field, as well as whether they are what you expected to find. (Often, the most interesting research results are those that were not expected!) You should also make a case for further research if you feel the results warrant it.

It can be very helpful to include visual aids such as figures, charts, tables, and photos with your results. Make sure you label each of these elements, and provide supporting text that explains them thoroughly.

Royal Academy School

One of the goals of the literature review is to demonstrate familiarity with a body of knowledge.

9.3.3: Abstract

Learning Objective

Describe the purpose of the abstract

Key Points

• Many online databases will only display the abstract of a scientific paper, so the abstract must engage the reader enough to prompt them to read the longer article.
• The abstract is the first (and, sometimes, only) part of your paper people will see, so it’s important to include all the fundamental information about your introduction, methods, results, and discussion sections.
• While a scientific paper itself is usually written for a specialized professional audience, the abstract should be understandable to a broader public readership (also known as a “lay audience”).

Key Term

abstract

The overall summary of a scientific paper, usually fewer than 250 words.

The Importance of the Abstract

The abstract of a scientific paper is often the only part that the reader sees.
A well-written abstract encapsulates the content and tone of the entire paper. Since abstracts are brief (generally 300–500 words), they do not always allow for the full IMRAD structure. A specialized audience may read further if they are interested, and the abstract is your opportunity to convince them to read the rest. Additionally, the abstract of an article may be the only part that is available through electronic databases, published in conference proceedings, or read by a professional journal referee. Hence abstracts should be written with a non-specialized audience (or a very busy specialized audience) in mind.  

What to Address in the Abstract     

While each medium of publication may require different word counts or formats for abstracts, a good general rule is to spend one to two sentences addressing each of the following (do not use headers or use multiple paragraphs; just make sure to address each component):

Summarize Your Introduction

This is where you will introduce and summarize previous work about the topic. State the question or problem you are addressing, and describe any gaps in the existing research.

Summarize Your Methods

Next, you should explain how you set about answering the questions stated in the background. Describe your research process and the approach(es) you used to collect and analyze your data.

Summarize Your Results

Present your findings objectively, without interpreting them (yet). Results are often relayed in formal prose and visual form (charts, graphs, etc.). This helps specialized and non-specialized audiences alike grasp the content and implications of your research more thoroughly.

Summarize Your Conclusions

Here is where you finally connect your research to the topic, applying your findings to address the hypothesis you started out with. Describe the impact your research will have on the question, problem, or topic, and include a call for specific areas of further research in the field.

9.3.4: Introduction and Thesis

Learning Objective

Identify elements of a successful introduction

Key Points

• Writing in the social sciences should adopt an objective style without figurative and emotional language. Be detailed; remain focused on your topic; be precise; and use jargon only when writing for a specialist audience.
• In the social sciences, an introduction should succinctly present these five points: the topic, the question, the importance of the question, your approach to the question, and your answer to the question.
• A thesis statement is a brief summary of your paper’s purpose and your central claim. The thesis statement should be one to three sentences in length, depending on the complexity of your paper, and it should appear in your introduction.

Key Terms

thesis statement

A claim, usually found at the end of the first paragraph of an essay or similar document, that summarizes the main points and arguments of the paper.

introduction

An initial section that summarizes the subject material of a book or article.

Social sciences

The social sciences include academic disciplines like anthropology, sociology, psychology, and economics

The introduction can be the most challenging part of a paper, since many writers struggle with where to start. It helps to have already settled on a thesis. If you’re feeling daunted, you can sometimes write the other sections of the paper first. Then, when you’ve organized the main ideas in the body, you can work “backward” to explain your topic and thesis clearly in the first paragraph.

Present Main Ideas

The introduction to a social-science paper should succinctly present the main ideas. The goal of the introduction is to convince the reader that you have a valid answer to an important question. In order to do that, make sure your introduction covers these five points: the topic, the question, the importance of the question, your approach to the question, and your answer to the question.

Structuring Your Ideas

A popular introduction structure is the concept-funnel—begin with general information about your topic, narrow the focus and provide context, and end by distilling your paper’s specific approach. As you move from general background information to the specifics of your project, try to create a road map for your paper. Mirror the structure of the paper itself, explaining how each piece fits into the bigger picture. It is usually best to write the introduction after you have made significant progress with your research, experiment, or data analysis to ensure you have enough information to write an accurate overview.

Papers in the sciences generally aim for an objective voice and stay close to the facts. However, you have a bit more freedom at the beginning of the introduction, and you can take advantage of that freedom by finding a surprising, high-impact way to highlight your issue’s importance. Here are some effective strategies for opening a paper:

• Make a provocative or controversial statement
• State a surprising or little-known fact
• Make a case for your topic’s relevance to the reader
• Open with a relevant quote or brief anecdote
• Take a stand against something
• Stake a position for yourself within an ongoing debate
• Talk about a challenging problem or paradox

Establishing Relevance

After you engage your reader’s attention with the opening, make a case for the importance of your topic and question. Here are some questions that may help at this stage: Why did you choose this topic? Should the general public or your academic discipline be more aware of this issue, and why? Are you calling attention to an underappreciated issue, or evaluating a widely acknowledged issue in a new light? How does the issue affect you, if at all?

Thesis Statement

A thesis statement is a brief summary of your paper’s purpose and central claim. The thesis statement should be one to three sentences, depending on the complexity of your paper, and should appear in your introduction. A thesis statement in the social sciences should include your principal findings and conclusions. If writing about an experiment, it should also include your initial hypothesis. While there is no hard-and-fast rule about where to state your thesis, it usually fits naturally at or near the end of the introductory paragraph (not later than the very beginning of the second paragraph). The introduction should provide a rationale for your approach to your research question, and it will be easier to follow your reasoning if you reveal what you did before you explain why you did it.

Testability

Your thesis is only valid if it is testable. Testability is an extension of falsifiability, a principle indicating that a claim can be proven either true or false. The statement, “all Swedish people have blonde hair” is falsifiable—it could be proven false by identifying a Swede with a different hair color. For a hypothesis to be testable, it must be possible to conduct experiments that could reveal observable counterexamples. This is the equivalent of the principle in the humanities that a claim is only valid if someone could also reasonably argue against it. 

Thesis Statements to Avoid

• The statement without a thesis: A statement of a fact, opinion, or topic is not a thesis. Push the thesis statement beyond the level of a topic statement, and make an argument.
• The vague thesis: If your thesis statement is too general, it will not provide a “road map” for readers.
• The “value judgment” thesis: Your argument should not assume a universal, self-evident set of values. Value-judgment-based arguments tend to have the structure “
  is bad;
  is good,” or “
  is better than
  .” “Good,” “bad,” “better,” and “worse” are vague terms that do not convey enough information for academic arguments. In academic writing, it is inappropriate to assume that your reader will know exactly what you mean when you make an overly general claim. The burden of proof, and thorough explanation, is on you.
• The oversized thesis claim. There is only so much material you can cover within a page limit, so make sure your topic is focused enough that you can do it justice. Also, avoid arguments that require evidence you do not have. There are some arguments that require a great deal of research to prove—only tackle these topics if you have the time, space, and resources.

9.3.5: Methods

Learning Objective

Identify the elements of a successful methods section

Key Points

• Scientific objectivity requires that your paper have a testable hypothesis and reproducible results.
• Your methods section should include all information necessary for your readers to exactly recreate your experiment; this gives others a chance to test your findings and demonstrates that your project meets the criteria of scientific objectivity.
• To prove that your paper meets those criteria, you need to include a detailed description of how you conducted your experiment and reached your conclusions.
• Specifically, your methods section should include details about your assumptions, your variables and participants, and what materials and metrics you used—essentially, any important information about when, where, and how the study was conducted.

Key Terms

IMRAD

Currently the most prominent norm for the structure of a scientific paper; an acronym for “introduction, methods, results, and discussion.”

testable

Also known as falsifiable; able to be disproven.

reproducible

Capable of being reproduced at a different time or place and by different people.

IMRAD: The Methods Section

Your methods section should include a full, technical explanation of how you conducted your research and found your results. It should describe your assumptions, questions, simulations, materials, participants, and metrics.

Because the methods section is generally read by a specialized audience with an interest in the topic, it uses language that may not be easily understood by non-specialists. Technical jargon, extensive details, and a formal tone are expected.

The methods section should be as thorough as possible since the goal is to give readers all the information necessary for them to recreate your experiments. Scientific papers need a thorough description of methodology in order to prove that a project meets the criteria of scientific objectivity: a testable hypothesis and reproducible results.

Purpose of the Methods Section: Testability

Hypotheses become accepted theories only when their experimental results are reproducible. That means that if the experiment is conducted the same way every time, it should always generate the same, or similar, results. To ensure that later researchers can replicate your research, and thereby demonstrate that your results are reproducible, it is important that you explain your process very clearly and provide all of the details that would be necessary to repeat your experiment. This information must be accurate—even one mistaken measurement or typo could change the procedure and results drastically.

Example Methods Section

The following is an example of a methods section of a scientific paper:

“The study focused on a three-hundred-mile stretch of the Columbia River, which has been the stretch of the river most studied historically. Five locations were selected, each sixty miles apart. Each location had three different water samples selected for three levels of the water: surface water (3-inch depth), mid-level water (12-inch depth), and water from the bottom of the river (36-inch depth). Samples were taken three times a day, seven days a week, during a period stretching from the fourth month before until the fourth month after the year’s salmon run.”

9.3.6: Results

Learning Objective

Identify the information that belongs in the results section

Key Points

• After discussing the methodology of your study, describe the outcomes that you measured or observed. 
• When presenting the findings, avoid drawing conclusions. Instead provide and explain the data you collected. This is your opportunity to tell the reader what you found without drawing any explicit conclusions from it.
• Use charts, tables, or graphs to present your findings in a way that is clear and easily understood.

Key Terms

summary

A condensed version of the background or main ideas of a text.

results

The section of a scientific paper that objectively presents the data collected or observed in a research study.

methodology

A detailed explanation of specific components of a research project, such as phases, tasks, methods, techniques, and tools.

Writing the Results Section

The results section is where you state the outcome of your experiments. It should include empirical data, any relevant graphics, and language about whether the thesis or hypothesis was supported. Think of the results section as the cold, hard facts.

Style

Since the goal of the scientific paper is to present facts, use a formal, objective tone when writing. Avoid adjectives and adverbs; instead use nouns and verbs. Passive voice is acceptable here: you can say “The stream was found to contain 0.27 PPM mercury,” rather than “I found that the stream contained 0.27 PPM mercury.” 

Presenting Information

Using charts, graphs, and tables is an excellent way to let your results speak for themselves. Many word-processing and spreadsheet programs have tools for creating these visual aids. However, make sure you remember to title each figure, provide an accompanying description, and label all axes so that your readers can understand exactly what they’re looking at.

Was Your Hypothesis Supported?

This is the part where it is the most difficult to be objective. If you followed the scientific method, you began your research with a hypothesis. Now that you have completed your research, you have found that either your hypothesis was supported or it was not. In the results section, do not attempt to explain why or why not your hypothesis was supported. Simply say, “The results were not found to be statistically significant,” or “The results supported the hypothesis, with
 significance,” or the like. Be objective—there will be time for interpretation later. 

Getting Ready for the Conclusion

It will be tempting to start drawing conclusions as you write the results section. You may also want to compare your results to the outcomes of other researchers’ experiments. Resist the urge! You’ll get your chance to draw conclusions in the conclusion section. The most you should do in the results section is present the data your experiments produced. Think of it as laying the foundation for what you will conclude later on in your paper.

9.3.7: Discussion and Conclusion

Learning Objective

Differentiate between the discussion section and the conclusion

Key Points

• The discussion section should briefly remind the reader of your research question and principal findings, and then interpret your results.
• Be sure to acknowledge other possible interpretations of your results in the discussions section, and admit your project’s limitations.
• In your conclusion, restate the research question, the main results, and the meaning of those results. However, avoid simply repeating your discussion section.
• In your conclusion you may also discuss the significance of your research for future research, public policy, personal decision-making, or other spheres of influence.

Key Terms

conclusion

The end, finish, close, or last part of something.

discussion

Text giving further detail on a subject.

Discussion

The discussion section of a scientific paper should interpret the results of your research. First, briefly remind your reader of your research question and principal findings by briefly restating these points. Then explain the results themselves. Discuss how they fit (or do not fit) your hypothesis, and whether they are consistent with the results of similar research projects. Did you encounter anything surprising or idiosyncratic? If so, why is it significant? What might have caused it? Build on the research question you posed in the introduction, and the context you established in the literature review. Make a case for the meaning and significance of your findings, and support your case by connecting it to related research.

Acknowledge other possible interpretations of your results, and admit your project’s limitations. Your argument will be more convincing if you can anticipate your reader’s potential objections to your claims and address them directly in the discussion section. For example, generalizability (or how applicable a study’s results are to a more general population) is more limited with a smaller or less homogeneous sample. If your research sample is small or limited, be sure to acknowledge those limitations and address how they might have affected the results.

If your interpretation has broader implications, you can either suggest them in the discussion section or introduce them in a separate conclusion. You don’t have to write a conclusion if your points fit neatly into the discussion section, but a conclusion is helpful if you want to make suggestions that stretch beyond the scope of your project.

Conclusion

The conclusion section is not strictly necessary in the social sciences, but it can be helpful to provide a succinct summary of your work. It is also a good place to make bold speculations about the implications of your project. You should discuss, somewhere in your paper, the significance of your research for future research, public policy, personal decision-making, or other spheres of influence. But think carefully about whether you could benefit from the distancing effect of putting these implications in a separate conclusion.

The conclusion should not repeat your discussion section. It should take one to three paragraphs to restate the research question, the main results, and the meaning of those results. The conclusion then reaches beyond the suggestions you made in the body of the paper to emphasize the importance of the results and their potential consequences.

Conclusion

Conclusions have been an important part of writing for centuries.