7.4: Employee Evaluation and Management, in Detail

7.4.1: Evaluating Employee Performance

Learning Objective

Explain the human resource responsibility of evaluating employee performance, focusing specifically on the various available methods

Key Points

• Evaluating performance is the process of assessing an employee’s job performance and productivity.
• Performance assessments can create benefits for management and employees through improving performance, but can also be a stressful, so they must be carefully implemented.
• The assessment is conducted utilizing previously established criteria that align with the goals of the organization and the specific responsibilities of the employee being evaluated.
• There are many methods of performance evaluation, such as objective production, personnel, and judgmental evaluation.
• Effective use of performance-evaluation systems includes the selection of the best evaluation method(s) and effective delivery. The outcomes of performance evaluation can include employee raises or promotions, as well as employee improvement through identifying weaknesses.

Key Term

Performance evaluation

The process of assessing an employee’s job performance and productivity.

Performance evaluation, or performance appraisal (PA), is the process of assessing an employee’s job performance and productivity. The assessment is conducted based on previously established criteria that align with the goals of the organization.

Various employee attributes can be assessed during this process, including organizational-citizenship behavior, accomplishments, strengths and weaknesses, and potential for future improvement. The management of performance plays a vital role in the success or failure of the organization, as human resources are a significant investment that must provide meaningful returns. An ineffective performance-evaluation system can create high turnover and reduce employee productivity.

Pros and Cons of Performance Appraisals

Benefits of the PA system include increased employee effectiveness, higher likelihood of improved employee performance, the prompting of feedback, enhanced communication between employers and employees, fostering of trust, promotion of goal setting, and assessment of educational and other training needs. Detriments of the PA system include the possible hindrance of quality control, stress for both employees and management, errors in judgment, legal issues arising from improper evaluations, and the implementation of inappropriate performance goals.

Performance appraisal is situated at both the individual employee level and the organizational level because human resources (HR) conducts evaluations of individuals in light of organizational goals with the object of improving achievement of these goals. HR relies on a strong performance-management policy; a proper PA should be able to educate employees on the organization, its goals, and its expectations in legal ways. This means that antidiscrimination laws and other employment laws need to shape the PA policy.

Methods of Performance Evaluation

There are various ways human resource professionals can approach assessing performance, though integrating various perspectives (i.e., collecting the most differentiated data) will paint the clearest picture. Some examples include:

Objective production: Under this method, direct data is used to evaluate the performance of an employee. This often relates to simple and quantifiable data points, such as sales figures, production numbers, etc. However, one drawback of this process is that the variability in performance can be due to factors outside employees’ control. Also, the quantity of production does not necessarily indicate the quality of the products. Still, this data reflects performance to some extent.

Personnel: This is the method of recording the withdrawal behavior of employees, such as absences. This personnel data usually is not a comprehensive reflection of an employee’s performance and is best complemented with other metrics.

Judgmental evaluation:One of the primary drawbacks of employee performance evaluation is the tendency for positive feedback despite negative behavior. That is, often people are nice enough to provide good evaluations for work that isn’t up to par. Judgmental evaluations focus on benchmarks to more accurately promote constructive criticism (through relative scales). A few examples include:

• Graphic rating scale: Graphic rating scales are the most commonly used performance-evaluation system. Typically, the raters use a 5 to 7 point scale to rate employees’ productivity.
• Employee-comparison methods: Rather than subordinates being judged against pre-established criteria, they are compared with one another. This method eliminates central-tendency and leniency errors but still allows for halo-effect errors to occur.
• Behavioral checklists and scales: Behaviors are more definite than traits. Supervisors record behaviors that they judge to be job-performance relevant, and they keep a running tally of good and bad behaviors and evaluate the performance of employees based on their judgement.

Peer and Self Assessments

Often, peer assessments and self-assessments are used to paint a clearer image of performance. Managers are often less aware of employee efficacy than team members or other peers. In self-assessments employees have the right to underline what they think their performance is, and why certain metrics may be misleading. Peer assessments and self-assessments are useful in capturing this data:

• Peer assessments: members of a group evaluate and appraise the performance of their fellow group members.
• Self-assessments: in self-assessments, individuals assess and evaluate their own behavior and job performance.
• 360-degree feedback: 360-degree feedback includes multiple evaluations of employees; it often integrates assessments from superiors and peers, as well as self-assessments. This is the ideal situation.

A manager rating an employee.

Rating an Employee

7.4.2: Structuring Employee Feedback

Learning Objective

Explore the various formats and structures for providing feedback

Key Points

• Providing feedback involves a wide variety of biases and subjectivity, and as a result it benefits from structure and strategy.
• A common and traditional method for looking at performance via objective production involves using simple metrics that indicate efficiency (such as sales numbers).
• Another common practice is managerial evaluations using behavioral checklists, graphic rating scales, and comparison among employees.
• 360 degree feedback utilizes managers, subordinates, colleagues, and self- assessments to paint or more rounded picture of performance.
• Start-Stop-Continue is an actionable and simple model that emphasizes direct feedback on how a given colleague can improve performance via straight-forward observations and suggestions for growth. 

Key Term

subjectivity

Judgments based on opinions and intuitions, and therefore not necessarily predicated in logic or reason.

Why Structure Feedback?

Employee and manager feedback is one of the more sensitive issues in a workplace, and can be greatly enhanced by careful planning and critical thinking about how to objectively, equitably, and efficiently discuss employee outcomes and assessments. 

As a result, structuring feedback strategically can be a great benefit to both managers and employees. There are a wide variety of models and structures for providing employee feedback. A few of the more useful structures for feedback are listed below.

Feedback Structures

Objective Production

The simplest of feedback mechanisms, this essentially looks at basic performance methods such as output, sales, volume, profitability, or other concrete and objective methods of overall productivity. As a structural option for feedback delivery, there are some pros and cons to this method. It works well in jobs where data is readily available and objective, but not so well in jobs relying on more ambiguous metrics. It is also quite impersonal, and can result in employees feeling like ‘just another gear in the machine’.

Judgment Evaluation

A much less objective approach would be various formats of judgment evaluation. All this really means is that an individual or group of individuals will assess the performance of a given employee, and provide this feedback directly (often in the form of a scale or model). As a result of the potential subjectivity, it is best to provide training to ensure consistency and informed assessment.

Some assessment formats include:

• Graphic Rating Scales: On some sort of relative scale (usually 1-5 or 1-7), employees are assessed on specific characteristics, accomplishments and behaviors. This is a useful method to observe improvements over time.
• Employee Comparison Models: Two of the main culprits of subjectivity are leniency error and central-tendency error (judging to favorably and judging everyone the same respectively). To avoid these, management could be asked to directly compare various employees. This does incur halo effect errors, however.
• Behavioral Checklists and Scales: Certain behaviors can have positive or negative implications, and monitoring specific key behaviors over a given time frame can be a useful feedback structure as well.

360 Degree Feedback

While managerial feedback is important, it is also important to balance this with the perspectives of colleagues, subordinates, and those of the individual being assessed (self assessment). In this model, all work groups and implications of a given individual’s work decisions can be assessed from various perspectives. Compared to a static top-down feedback structure, 360 degree feedback has significant advantages in accuracy, objectivity and equality.

Start-Stop-Continue

Often simplicity excels in implementing feedback, and the Start-Stop-Continue model is just about as simple as it gets. Agile teams and flat organizational structures focus on peer assessments that leverage models such as this (often coupled with some basic rating scales) to assess employees with the goal of personal growth. This is done using three points of commentary:

• Start: What tasks, habits, and/or behaviors should the employee begin doing to improve?
• Stop: What should a given employee discontinue doing to improve performance?
• Continue: What does the employee excel in doing, and should continue?

The key advantage of this structure is the simplicity of it. Employees have immediate feedback that they can actually act on right away.

Conclusion

While there are countless opinions and models to utilize in structuring feedback, managers should keep in mind that the purpose of feedback is growth and improvement. Any model selected should result in actionable conclusions the employee can use to improve.

7.4.3: Employee Pay Decisions

Learning Objective

Analyze the various methodologies used by HRM to measure, benchmark, and ultimately devise appropriate pay strategies

Key Points

• Techniques that assist payroll professionals in making their pay decisions include external measures such as benchmarking (salary surveys) and ongoing reporting that constitute a market survey approach.
• Internal measures such as projections, simulations, predictive modeling, or the use of pay grades look to the needs of the organization, and the relative value of tasks within it, to make pay decisions.
• Variable systems like pay for performance create a policy line that connects job pay and job evaluation points.

Key Terms

benchmarking

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

predictive modeling

Predictive modelling is the process by which a model is created or chosen to try to best predict the probability of an outcome.

Pay decisions refer to the methods used by human resources and payroll professionals to choose the pay scales of employees. Techniques that assist payroll professionals in making their pay decisions include:

• External measures such as benchmarking (salary surveys) and ongoing reporting that constitute a market survey approach.
• Internal measures such as projections, simulations, and predictive modeling or the use of pay grades use an organization’s needs to assess the relative value of tasks within it.
• Variable systems like pay-for-performance create a policy line that connects job pay and job evaluation points.

Benchmarking

Benchmarking is when an organization compares its own pay practices and job functions against those of its competitors. Obvious cautionary points in the use of these kinds of salary surveys include the inclusion of only appropriately similar peers in the comparison, the inclusion of only appropriately similar jobs in the comparison, and accurately weigh and combining rates of pay when multiple surveys are used.

Measuring up

Managers benchmark the metrics of their company against those of industry competitors.

There are two types of salary surveys that can be used in benchmarking: labor market comparisons and product market comparisons. Labor market comparisons are best when employee recruitment and retention is a major concern for the employer and when recruiting costs are a significant expense. Product market comparisons are more salient when labor expenses make up a major share of the employer’s total expenses, when product demand is very fluid, when the labor supply is relatively steady, and/or when employee skills are specific to the product market in question.

Within the benchmarking process, the job category and range of pay rates within it are important to the payroll professional. Certain key jobs are very common to organizations in a given field and have a relatively stable set of duties. As a result, key jobs are useful in benchmarking since they allow for more accurate comparison across many organizations. Non-key jobs are unique to their organizations and are therefore not useful in benchmarking. Job content is far more important than job title in this context, although it is easy to confuse content for title. Range of pay rates refers to the variety in pay rates that workers in one job area might receive.

Salary Surveys

The use of salary surveys demands credible survey sources with multiple participating organizations. Organizations responding to a given survey must be similar to the organization using that survey. Close attention to job function is also crucial; it is inappropriate to match and compare salaries based on job title alone.

Internal Measures

Benchmarking uses external measures to make internal pay decisions. Internal measures are also available in most cases, and include the use of analytic techniques such as projections, simulations, and predictive modeling in the pay decision-making process. External and internal measures have very different focuses. External measures ask the market what any given individual should be paid. Internal measures correlate pay decisions to potential organizational benefits.

Pay Grade System

A pay grade system is simply tiered levels of pay based on position, experience, and seniority. Using a pay grade system has its own risks that should be backed by strongly predictive internal measures because 0nce pay grades are in place, the cost of changing and updating them is significant. This can lead to stagnation in an organization’s pay scale system.

Connected to this problem is the fact that an existing pay scale can reward skill sets that were highly useful to the organization in the past more than skill sets that are currently needed. Projections, simulations, and predictive modeling assist in counteracting these issues, as they make use of an organization’s own internal data to ensure that assessments of value and need are accurate.

Pay for Performance Systems

Variable pay decision systems like pay-for-performance are designed to motivate employees and ensure intra-organizational cooperation. When designing this kind of system, the first thing to assess is the personnel goals of the organization (as this kind of system can be tailored significantly). Interacting with managers across departments can help payroll professionals understand what is most important to the various areas of the organization at any given time.

Merit and incentive pay programs are common forms of pay-for-performance systems. Promotions based on performance rather than set time periods are also critical to pay-for-performance schemes.

7.4.4: Incentive Systems for Employees

Learning Objective

Describe the purpose of an incentive system and learn how human resources professionals can assess organizational needs to select the best one

Key Points

• Human resources (HR) professionals are tasked with using employee and organizational objectives to identify and implement the best employee incentive programs.
• To be effective, incentive systems must address employee skills and motivation, acknowledgement of employee successes, a clearly-defined set of goals, and a means for assessing progress. Employee effort increases as workers perceive that they are achieving set goals.
• Recognizing which incentive systems are most appropriate for an organization is a primary challenge for HR professionals.

An incentive system is a business management tool that introduces a structured motivation system to promote desired employee behaviors. Human resources (HR) professionals are tasked with using employee and organizational objectives to identify and implement the best employee incentive programs.

How Incentives Improve Performance

To be effective, incentive systems must address employee skills and motivation, acknowledgement of employee successes, a clearly-defined set of goals, and a means for assessing progress. These systems must also be tailored to the needs of the organization. Incentive systems are often implemented to prevent and overcome poor performance, failure to meet organizational goals, poor morale, increased turnover, and the stress of increased demands on employees.

Carrot and stick

Incentive systems should use the carrot (reward) as opposed to the stick (punishment) to motivate employees.

Incentive systems are grounded in the idea that employee effort increases as workers perceive that they are making progress towards reaching set goals. A successful system promotes full employee participation by offering a wide array of rewards and keeping employees motivated to participate.

The Role of Human Resources

Incentive systems only work when they are closely tailored to the goals of the organization. The system’s goals must be challenging but attainable, or employees will not be motivated to participate. It’s counter-intuitive, but research has shown that monetary rewards are ineffective incentives. One incumbent risk of incentive systems is the moral hazard of encouraging individuals to achieve their own goals and specific targets rather than improving upon organizational performance as a whole.

Human resources departments must identify the core culture of the organization and create incentives that match it. For example, a company built on innovation must inspire risk-taking without any guarantees of success. This means performance incentives and metrics may be relatively useless (and most likely damaging) to executing the core organizational goals. Instead, HR could provide incentives like telecommuting or the freedom to devote a percentage of each work day to independent projects (Google does this).

At the other end of the spectrum, Walmart promotes rigidly controlled operational efficiency. To reduce employee errors, an incentives system could reward efficiency. The most consistent truck drivers, for example, could receive a reward for their clockwork performance.

7.4.5: Employee Benefits Management

Learning Objective

Break down employee reimbursement to describe a variety of direct and indirect benefits captured by the employee from human resource management

Key Points

• These critical benefits ensure that employees have access to health insurance, retirement capital, disability compensation, sick leave and vacation time, profit sharing, educational funding, day care, and other forms of specialized benefits.
• The human resources department is the area of an organization responsible for organizing, implementing, and managing employee benefits across the company.
• Benefits and compensation are at the center of HR operations and play a central role in both the financial capacity and talent management of any institution.
• In most developed nations there are laws that govern benefits and agencies that enforce them. HR is also tasked with understanding the benefits that employees have a legal right to and implementing them properly.

Key Terms

Compensation

What is expected in return for providing a product or service.

profit sharing

A system in which some of the profit of an enterprise are divided among the workers, giving them an incentive for profits without an equity interest.

Employee benefits are non-wage compensations designed to provide employees with extra economic security. These benefits ensure that employees have access to health insurance, retirement capital, disability compensation, sick leave and vacation time, profit sharing, educational funding, day care, and other forms of specialized benefits. Receiving these benefits along with one’s salary is fairly standard in full-time professional employment.

Human Resource Responsibilities

The human resources department is the area of an organization responsible for organizing, implementing, and managing employee benefits across the company. Human resources (HR) has a wide range of responsibilities, including hiring, training, assessment, and compensation across the company. Benefits and compensation, however, lay at the center of HR operations and play a central role in both the financial capacity and talent management of any institution.

HR responsibilities

Human resources departments carry out many services, including data management, service efficiency, and employee services.

Human resources contribute to the overall employee experience across the span of an employee’s time with the company. Benefits play an important role in maintaining high levels of satisfaction. Employee satisfaction is often overlooked in favor of customer satisfaction, but is just as critical to a healthy business. As a result, HR has a critical task in maintaining high levels of employee satisfaction to ensure maximum operational efficiency.

Benefits provided by the company, particularly retirement investing and health insurance, ensure that employees feel taken care of and secure in return for their investment of time and effort. The safety net provided and maintained by the company is a strong motivator of employee loyalty and satisfaction.

Legal Concerns

In most developed nations there are laws that govern benefits and agencies to enforce them. HR is also tasked with understanding the benefits that employees have a legal right to and implementing them properly. The Employee Benefits Security Administration (EBSA) is the agency in the United States responsible for administering, regulating, and enforcing many of these benefits. HR also works closely with the legal department to understand and provide the benefits required by each country they operate in.

HR is a central element of any successful business because it maintains the most valuable investment of any business: its people. Employee satisfaction and compensation help companies achieve high efficiency and strong performance from their employees by administering the appropriate level of compensation and benefits.

7.4.6: Employee Promotions

Learning Objective

Evaluate human resources’ role in creating promotion opportunities to motivate employees and develop upwards mobility within an organization

Key Points

• A promotion is the advancement of an employee’s rank, salary, duties, and/or designation within an organization.
• Promotions can also carry increases in benefits, privileges, and prestige, although in some cases the promotion changes designation only.
• The number of safeguards in place against unfair practices in promotion depends on the public or private nature of the organization.

Key Term

Designation

A distinguishing name or title.

A promotion is the advancement of an employee’s rank, salary, duties and/or designation within an organization. Promotions are often a result of good employee performance and/or loyalty (usually via seniority). The opposite of a promotion is a demotion.

The Role of Human Resources

Prior to promoting someone, the human resources department of an organization must ascertain whether the employee in question can manage the increase in responsibilities that accompanies the new role. If not, additional training may be required to prepare the individual for their new organizational role.

Incentives of Being Promoted

Internal promotions carry incentives that motivate employee efficacy and ambition. Human resources can manage internal promotional opportunities and benefits to increase employee engagement. A promotion might involve a higher designation. This means that the more senior position has a different title. An example would be a promotion from office manager to regional manager. A promotion can (and often does) mean an increase in salary. The amount of the raise varies widely from industry to industry and from organization to organization within a given industry.

Promotions can also carry increases in benefits, privileges, and prestige, although in some cases only the title changes. In very hierarchical organizations, like the military, the change in rank alone is significant and brings with it new responsibilities. In the nonprofit sector pay increases are modest, so the prestige of a promotion is one of its main benefits. In the private sector, promotion can include substantial salary increases, benefit increases, stock options, and various “perks,” such as a bigger office or executive parking.

Safeguards and Systematic Equity

Generally speaking, there are more procedural safeguards against preferential treatment in the public sector as compared with the private sector, where senior managers enjoy broad discretion in making promotions. Review of promotion decisions and mandates to document such decisions in personnel files protect against discrimination, bias, and preferential treatment. It is critical for human resources professionals to understand and describe why a given promotion is occurring, justifying it both quantitatively and qualitatively.

7.4.7: Employee Transfers

Learning Objective

Identify when it is appropriate to consider strategic or unexpected interdepartmental transfers within a human resources frame

Key Points

• Transfers can occur for a number of different reasons and can be initiated by employees or managers. Types of employee transfers include: strategic transfers, necessity transfers, and talent/management transfers.
• A strategic transfer takes place when an organization is trying to grow a specific segment of its operations, and needs experienced and trusted individuals to pioneer this process.
• A necessity transfer takes place when there is a demand for employees in a different department of the organization, where a specific skill set is scarce.
• A talent transfer usually moves an employee from their original department after it becomes clear that their skill set is more suited to another department.

Key Terms

strategic

Of or pertaining to strategy.

Scarcity

An inadequate amount of something; a shortage.

necessity

The quality or state of being required or unavoidable.

Evaluating and executing employee transfers is an essential function of human resources management. Transfers can be horizontal, between departments within an organization, or vertical, from one level in the organization to another, either up or down. It is useful to view promotions and demotions as vertical and transfers as horizontal (though they can be vertical as well, to a certain extent). Transfers can occur for many different reasons; they can be driven by employees or managers. Types of employee transfers include: strategic transfers, necessity transfers, and talent/management transfers.

Strategic Transfers

A strategic transfer may take place when an organization is trying to grow a specific segment of its business. For example, if a car maker wants to strategically grow its quality department to meet the goal of building safer cars, it may want to train additional staff for a transfer to the quality department. It is also highly useful to have a few experienced employees who understand the company better than new employees guide the trajectory of the new project.

Necessity Transfers

A necessity transfer may take place when there is a demand for employees in a department of the organization where a specific skill set is scarce. This may happen because of layoffs, a change in company strategy, or a scarcity of a certain type of employee. A necessity transfer usually includes an incentive, like a raise, to give employees an incentive to put in the training the transfer will require.

A manager rating an employee.

Rating an Employee

Talent Transfers

A talent transfer usually moves employees from their original department after it becomes clear that their skill set is more suited to another department. It is predicated on the original department’s ability to absorb the loss of that employee as well as the level of need in the new department. Talent transfers are more likely to be initiated by employees who perceive that they can contribute more to a new department.

Finally, employees may also request transfers in an organization for a number of different reasons (i.e., family or personal requirement, location requirements, change in interest, and working with different people). The important component from a human resources perspective is making sure that the employee’s concerns are legitimate and insuring that the transfer will be beneficial for the organization by assessing the employee’s fit in the proposed transfer location. Making sure that employees are working where they have the best fit promotes higher efficiency and synergy.

7.4.8: Employee Discipline

Learning Objective

Assess the advantages and disadvantages of the methods outlined to discipline employees in the workplace

Key Points

• Corrective discipline and progressive discipline are the two most common disciplinary systems.
• Progressive discipline provides a general series of steps to complete. Corrective discipline allows managers to tailor disciplinary action to fit different situations.
• Documentation is crucial in employee discipline to protect employee rights and prevent legal action.
• There are four main kinds of discipline in the workplace for employee failures and poor conduct: verbal counseling, written warning, suspension, and termination. Other less common forms of discipline include demotion, transfer, and withholding of bonuses.

Key Terms

Progressive discipline

Provides general steps that must be completed for all infractions.

Corrective discipline

A corrective discipline system allows managers to tailor disciplinary action to fit different situations.

Employee discipline problems can be minimized by ensuring that organizational policies are clearly communicated to employees. Consequences for violating organizational policies must be clearly communicated so that employees know and understand them. Organizations must create strong, clear disciplinary policies and enforce them when needed. In addition, organizations must prohibit discrimination and harassment by creating clear and detailed written policies.

Types of Discipline

Corrective discipline and progressive discipline are the two most common disciplinary systems in the workplace:

• First, progressive discipline sets forth clear but general steps that must be completed for all infractions. This limits the disciplinary actions that can be taken against an employee by referencing the employee’s prior disciplinary history. This system has the advantage of eliminating most disparate treatment claims, since everyone receives the same disciplinary steps regardless of other factors.
• Second, corrective discipline allows managers more flexibility and permits the manager to tailor disciplinary action to fit different situations. This flexibility does not remove the onus on the manager and the organization at large to ensure that similar cases are treated equally. Review of disciplinary actions falls to the HR department to ensure that employees experience no disparate treatment. This is key to avoiding legal charges of inequitable treatment: HR has a very important organizational role in preventing long-term issues and potentially high costs.

Documentation of Discipline

Documentation is crucial in cases of employee discipline. If an employee is penalized or fired for an infraction that the organization cannot document, s/h might file–and win—a wrongful termination suit. This is particularly true when performance appraisals are not detailed enough.

A lack of consistency in disciplinary procedures is equally dangerous for organizations. If employees receive different disciplinary responses to the same infraction, the organization can be found liable for discrimination even when none was intended. Aggravating and mitigating factors should be considered and documented in each situation. This means that all disciplinary procedures must be well-documented and fairly applied.

Methods of Discipline

There are four main methods of discipline for employee failures and poor conduct: verbal counseling, written warning, suspension, and termination. Other less common forms of discipline include demotion, transfer, and withholding of bonuses.

Termination

This cartoon shows a professor being terminated from university employment. Termination is the last of disciplinary options.

• Verbal counseling is typically the first response to an infraction. A verbal warning must be administered to the employee in private and as objectively as possible. The presence of one management-level witness, preferably an HR professional, is recommende. Any verbal counseling must be documented in writing in the employee’s personnel file.
• A written warning is usually the next level of discipline and typically follows a verbal warning. After the employee has received a written warning and has had time to review it, there should be a private meeting between the manager and the employee and a witness (and the employee’s representative if s/he has one). Disciplined employees should sign the written warning to show that they received it, and should be informed that signing the warning does not indicate that they agree with it. Should the employee refuse to sign, the witness can sign to acknowledge that they observed the meeting and the employee’s refusal to sign.
• The next form of discipline is typically suspension. This is usually unpaid and varies in length. Paid suspensions can function in practice as inadvertent rewards for disciplinary infractions and should be avoided. Whether the suspension leads automatically to termination upon the next infraction is up to the employer. Generally if there are multiple suspensions they should increase in length and ultimately result in termination. Whatever procedure an organization adopts, it should be clear about the next step, whether suspension or termination. All of this must be documented in writing.
• Termination is the last disciplinary step. Before taking this step a manager should review employee files to ensure that this is an appropriate step and that similar action has been taken in similar circumstances before. Some behavior should automatically give rise to termination regardless of context. Violence and threatened violence, drug or alcohol use in the workplace, bringing weapons onto organization property, ignoring safety regulations, stealing, falsifying documents, and abandoning a job (no call, no show for three consecutive days) are all grounds for immediate termination. Any other course of action puts the organization and other employees at risk.

7.4.9: Employee Dismissal

Learning Objective

Discuss the common reasons and justifications for employee dismissal from the human resources management perspective

Key Points

• Common reasons for dismissal include absenteeism, “time theft” offenses (i.e., improper use of breaks), incompetence, and poor job performance.
• Gross misconduct offenses, such as violence, serious negligence, repeated insubordination, fraud in the job application process (whenever it is discovered), harassment of co-workers, or drug use at work are grounds for immediate dismissal.
• At times, even off-the-clock behavior can impact employment and result in a dismissal.
• Under typical circumstances, dismissal is the last step in a chain of disciplinary actions.
• Human resources are mediators, who must maintain objective perspectives in assessing the validity of reasoning behind any and all employee terminations.

Key Term

gross misconduct

Violence, serious negligence, repeated insubordination, fraud in the job application process, harassment of co-workers or drug use in the workplace.

Dismissal is the involuntary termination of an employee. It is colloquially referred to as being “fired.” Dismissal implies employee fault, although this is not always the case. In most states, an employee can be fired for any reason or no reason at all, as long as they are not fired for a prohibited reason. Indeed, most dismissals are a by-product of economic conditions or organizational failure beyond the individual employee’s control (i.e., layoffs).

U.S. unemployment, 1995-2012

Layoffs, particularly during recessions, are a common reason for employee dismissal. The recessions of 2001 and 2008 were both followed with drops in U.S. employment.

Reasons for Dismissal

Common reasons for dismissal include absenteeism, “time theft” offenses (i.e., improper use of breaks), incompetence, or poor job performance. Gross misconduct offenses, such as violence, serious negligence, repeated insubordination, fraud in the job application process (whenever it is discovered), harassment of co-workers, or drug use at work are grounds for immediate dismissal.

At times, even off-the-clock behavior can impact employment and result in a dismissal. For example, if an employee is convicted of driving while under the influence, s/he will not be able to keep a job that requires driving. Other offenses, even if unrelated to job performance, can be seen as a sign of unreliability on the part of the employee and can result in dismissal. Similarly, employees often represent organizations outside of work. It is bad PR for an organization’s employees to be in trouble outside of work.

The Role of Human Resources

Dismissal is almost always the last step in a chain of disciplinary actions. Most workplaces recognize some sequence of disciplinary consequences, starting with verbal counseling, moving to written warnings and suspension, usually without pay.

In extreme circumstances, however, employees can be summarily dismissed. Regardless of the circumstances of the dismissal, organizations must document all infractions carefully and be consistent in their application of disciplinary measures including dismissal. Organizations that dismiss some employees for a particular infraction but not others leave themselves open to legal liability, even in right-to-work states.

Human resources departments are tasked with managing this process, and must ensure complete coordination of company policy with state or federal law. If the dismissal is seen as harassment-based or founded in discrimination, the organization’s unethical acts will have significant legal ramifications and costs. Human resources professionals are mediators who must remain objective when assessing possible employee termination.

7.5: Current Topics in Human Resource Management

7.5.1: The Importance of Work-Life Balance

Managers are increasingly aware of the importance of promoting a healthy work-life balance for employees, which increases job satisfaction.

Learning Objective

Illustrate the way in which technological advances and competitive economies are eroding the work-life balance and how human resource professionals can offset the 24-7 demands of the workplace

Key Points

• The advancements in the way people access information, communicate with one another, and complete tasks have allowed for flexibility in the workplace, but they have also diminished the distinction between work and family.
• If people don’t have time to relax and recharge, their ability to do their job decreases and their performance level suffers.
• In addition to hiring, training, employment contracts, and regulatory considerations, ensuring that employees are both healthy and satisfied at work is well within the purview of human resources departments.
• Human resources can alter organizational culture, enforce vacation time, offer flextime, and advise overworked employees to avoid the pitfalls of imbalanced work-life dynamics.

Key Terms

burnout

The experience of long-term exhaustion and diminished interest, especially in one’s career.

balance

Mental equilibrium; mental health; calmness; a state of remaining clear-headed and unperturbed.

The Price of a 24-7 World

Technology has improved people’s lives in many different ways. People can live longer, healthier lives because of technological advancements. A student can access vast resources of information to complete assignments and a mother can see and talk to a daughter who is thousands of miles away. The advancements in the way people access information, communicate with one another, and complete tasks have allowed for flexibility in the workplace. Global markets have opened up and communication has allowed instant access to local expertise, enabling income streams and relationship building anywhere in the world.

With email, texting, instant messaging, and fax, people can communicate instantaneously. With the advancement in smart phones, laptops, and tablets, employees are able to leave the office but still do their work. This has allowed more employees to bring their work home with them. While such access does allow them to spend more time at home, it has blurred the lines between work and life. If the boss sends a text at eleven at night, does the employee have to answer it? When should a person shut down the laptop and spend time with friends and family or pursue their own interests?

Technology also allows some employees to work from home offices full time, and they never have to visit their place of business. While telecommuting eliminates the need to drive to the office, the ability to work from home can make work consume a person’s life. What was once a forty-hour-a-week job can easily become a sixty-hour-a-week job. The person in this scenario will be both stressed and less effective professionally.

The Importance of Work-Life Balance

As with most things in life, moderation is the key. People who are constantly tied to their jobs deal with the symptoms of stress and burnout. Overworked employees are more likely to suffer health problems, more like to be absent and/or sick, less efficient, less sociable, and overall more difficult to work with. It is in the best interest of both the employee and employer to avoid these pitfalls through smart human resource management.

The Role of Management in Promoting Work-Life Balance

Human resource (HR) management is a particularly versatile element of the organization, and its responsibilities are often much less clear than a textbook might imply. While hiring, training, employment contracts and regulatory considerations are well within the HR framework, so too is ensuring that employees are both healthy and satisfied at work. This requires taking stands on behalf of the employees, and putting organizational and managerial expectations and policies in place to ensure that employees are treated properly.

One example of what HR and/or upper management can do in this regard is override the culture to encourage employees to take time for themselves. Upper management must communicate to lower managers, through words and by example, that work communication past a certain time of night (or on the weekends) is only acceptable in highly time-sensitive situations (or never at all). HR can suggest to employees that they turn off their work phones in the evenings and leave their work computers in the office unless absolutely necessary.

Another useful tool for management is flextime. This is particularly useful for individuals in global markets, since they are often on the phone early in the morning or late at night with clients or suppliers on the other side of the globe. Employees might also work only four days a week, but work 10 to 12 hours each of those days (from, say, 6:00 a.m. to 5:00 p.m.). Businesses focused on quarterly results could offer long weekends at a company-wide level at the beginning of each new quarter (when workload is the smallest). HR professionals should be observant and creative, identifying when employees are pushing themselves too hard and offering solutions.

The importance of balance

Balance helps to create harmony and peace of mind.

7.5.2: Increased Reliance on Contractors and Part-Time Employees

Management must both define and carefully consider the common tradeoffs in employing a part-time or contract-based workforce.

Learning Objective

Analyze the value captured through employing contractors and part-time employees as a human resource strategy

Key Points

• Part-time employees work 35 or fewer hours a week and generally don’t receive benefits from their employers.
• Contractors are independent organizations/individuals that companies hire on a short-term basis, removing the burden of paying for their training, benefits, or employment taxes.
• While there are clear benefits to employing a part-time or contract-based workforce (limited benefits and training costs, lower commitment and risk exposure, etc.), there are opportunity costs as well (employee buy-in, long-term employment development, etc.).
• Both departmental managers and human resource managers must discuss and weigh the benefits and drawbacks of offering a job part-time, full-time, or on a contractual basis. It is a strategic decision with high cost exposure.

Key Term

contractor

A natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or a verbal agreement.

As companies try to streamline operations and increase profits, human resource professionals are now looking at employees in a different light. In addition to finding the right candidate for the job, they are looking at how to cut costs per employee while still maintaining quality services for clients. The amount of money spent searching for, hiring, compensating and training an employee is examined and used to help determine profits and loss for a company.

As businesses look at new avenues to reduce overall costs, human resources management has evolved to include different types of employment, including more part-time employees and contractors. Particularly in light of the recent banking disaster (2008/2009), trends towards lower cost employment have grown increasingly common. HR professionals and departmental managers must be aware of the tradeoffs and opportunity costs of the models they chose to employ.

Part-time employment trend

In red, we can see that U.S. part-time employment has been on the rise consistently, with a particularly large jump in 2009 as a result of the banks failing to manage risk and the subsequent recession.

Part-Time Employees

While there is no standard definition of an employee in the U.S., most companies define part-time employees as those who work 35 or fewer hours per week. In addition to working fewer hours, part-time employees don’t usually qualify for benefits such as health insurance, 401K, or paid vacation time.

Pros

The benefit of using part-time employees is mainly that the cost per employee for hiring, orientation, and training is less than for full-time workers. Another benefit of employees that work fewer hours is that employers can be more flexible with scheduling. If a position requires long hours to fill, hiring two part-time people can make scheduling easier than with one full-time employee. It also helps avoid overtime or time and a half, thereby reducing overhead for an employer.

Hiring a greater volume of individuals, but for fewer hours each, also provides more diversity in perspective and skills, which potentially drives higher value (though with more managerial time investment required). This can be particularly useful if a manager is looking to ultimately hire one full-timer and first wants to test a few people to assess skills and organizational fit.

Cons

There are downsides to hiring part-time employees as well. Full-time employees often consider their job a career, and will utilize long-term goals such as promotions and overall organizational success as motivators. Full-timers can also be invested in (e.g., through training and education) with more potential for a return on investment. Part-time employees are more transient, and since they’re more likely to come and go, long-term motivational strategies are less effective with part-timers.

Contractors

Unlike full-time and part-time workers, contractors aren’t official employees of the company. They are hired for a specific position or task and consider the organization a client. Contractors often have more than one client to which they offer similar services, and are therefore specialists. As contractors aren’t employees, companies don’t have to offer benefits or pay taxes such as payroll or social security. Contractors invoice the companies they work for, often on a weekly or monthly basis, and pay their own insurance and taxes.

The pros and cons for part-timers are generally the same as for contractors, where specialists are being hired for short-term contracts (and thus are motivated by the completion of a given task as opposed to by the long-term success of their clients).

Positions that are often filled by contractors include:

• Accounting
• Sales
• Construction
• IT (programming, web development, etc.)
• Design (creating ads, logos, etc.)
• Logistics (e.g., Fedex, UPS)

Human Resource Decisions

As always, trade-offs are inherent when making these hiring decisions. HR professionals must discuss with other management to determine what skills are needed over what period of time, and what resources are available annually to fulfill these needs. If it is a long-term project likely to evolve, with complex political and social interactions and relationship building, a full-timer is probably required. If it is a specialized, short-term task, a contractor or part-timer could be more appropriate. Of course, the limitations of resources impact this decision enormously, as the financial collapse underlines via increasing trends in part-time hiring.

7.5.3: Compensation and Competition

Good compensation helps organizations stay competitive in their industry by retaining high-quality employees.

Learning Objective

Assess the intrinsic value of strong compensation packages relative to deriving competitive advantage

Key Points

• It has become standard in today’s market to pay employees wages and benefits through a compensation package.
• Candidates will often pass on a high-wage position for one that combines wages and benefits.
• Companies need to balance compensation packages, which help acquire and keep quality employees without incurring unsustainable costs.

Key Terms

Compensation

The total wages and benefits paid to an employee or contractor for a given job or contract.

benefits

Non-wage compensation that is offered to at least 80 percent of the staff.

Employees are invaluable resources for an organization. Ensuring the welfare and happiness of employees can make them more productive and less likely to leave the company. This is not only an internal consideration but also a competitive one. Securing and retaining top talent is not unlike securing and retaining customers, where effectively identifying the appropriate target and sustaining that relationship lowers long-term costs and increases brand value.

One of the key instruments in attracting and keeping employees is creating an effective compensation package. Compensation must therefore be both competitive and well-designed to meet the needs of the customer (in this case, the employee). Human resources (HR), in conjunction with the hiring manager, is tasked with this process.

Components of Compensation

Compensation is what employees receive for the work they perform at a company. Compensation can come in the form of cash as well as benefits (e.g., health insurance).

Compensation and health insurance

Employers think about the total compensation cost of employees and that calculation considers what they pay in health insurance premiums, in addition to salaries and wages. Since insurance premiums continue to grow rapidly, this cost is increasingly replacing other forms of compensation. The Council of Economic Advisors predicts that eventually wages will actually be reduced in real (inflation-adjusted) terms as the increase in insurance premiums will require reductions in non-insurance compensation. Health insurance premiums are thus a cause of salary and wage growth stagnation for much of the population in the U.S.

The current trend for organizations is to compensate employees with a combination of wages and benefits. Candidates often require a compensation package that includes benefits as a perk for employment, and may pass on a position with a higher salary if a competitor is offering a lower salary and a benefits package. These benefits generally revolve around healthcare and dental coverage, employee discounts, retirement planning, educational benefits, stock options, and other forms of additional compensation.

Compensation and Competitiveness

Compensation can be a two-edged sword if it is not managed properly. On one hand, a high base salary and a lucrative benefits package can help an organization keep and retain high-quality employees. On the other hand, high levels of compensation create high overhead for the company. In addition, attracting employees purely through offering high levels of compensation has disadvantages; these employees may have little attachment to the intrinsics of the job and may leave as soon as they find a better offer elsewhere.

Companies need to find a balance when creating a compensation package to attract quality employees and keep overhead low. To identify this balance, companies must look at the structure of the wages within the organization, the compensation common in their industry, as well as their strengths and those of their competitors. By looking at these factors an organization can attract the employees it needs to maintain a competitive advantage and keep employee turnover low.

7.5.4: The Importance of Fringe Benefits

Hiring and retaining employee talent is a critical factor in success, and providing fringe benefits can be an effective tool in this process.

Learning Objective

Identify the critical importance of providing strong benefits packages, particularly in light of current external factors (e.g., health care costs)

Key Points

• Most employees expect some form of nonmonetary benefits in addition to wages.
• In order to be competitive in their industry, companies can offer various fringe benefits to attract and retain employees. Benefits, if well managed, can be a source of competitive hiring practices.
• With the increase in healthcare costs, employees are trending more towards jobs with benefits that will assist them with covering these costs. Companies also capture scale economies when negotiating with insurance companies, lowering cost per employee.

Key Term

fringe benefits

Various forms of nonwage compensation provided to employees in addition to their normal wages or salaries.

A combination of wages and benefits such as health insurance, vacation time, and retirement plans have become an expected form of compensation for today’s employees. As the search for high-quality workers becomes more difficult and health care costs increase, it has become important to offer fringe benefits to gain a competitive advantage. Common benefits include the following:

• Relocation assistance
• Sick leave
• Company cars
• Medical and dental insurance plans
• Vacation/paid leave
• Profit sharing
• Retirement plans
• Leisure activities on work time, such as in-office exercise facilities
• Long-term and life insurance
• Education funding
• Legal-assistance plans
• Child-care plans
• Miscellaneous employee discounts
• Free lunches at work

Rising Healthcare Costs

Healthcare costs have risen at a rate that makes it difficult for governments, businesses, and individuals to keep up. Without health insurance, individuals can easily be forced into poverty by trying to obtain medical care on their own.

International health care cost comparison

The above chart underlines the struggle in the United States to pay for health care: U.S. healthcare costs exceed those of other countries relative to the size of the economy (GDP). Health care, due to poor management of the industry, is a leading cause of poverty in the U.S. and is a crucial benefit companies can offer employees.

While the cost negatively impacts businesses, it also offers an opportunity through competitive advantage. This is to say, organizations can capture lower health insurance costs per employee due to scale economies, allowing organizations an important bargaining chip in the hiring process.

Stock Options

Another key benefit for top talent is the offering of stock options. While stock as compensation has unique taxation rules, which can make it more or less attractive for specific people, it also has the added benefit of motivating the employee (particularly top management) to work to achieve broader organizational success. Stock options essentially mean ownership of the company, and this company ownership (i.e., equity) drives positive employee behavior.

7.5.5: The Evolution of Labor Relations

Human resource management must carefully monitor the labor relations and regulations in all of the geographic regions where they hire.

Learning Objective

Explain the way in which labor relations and labor unions evolve and change over time, alongside the implications of the negotiation process between employers and employees.

Key Points

• A trade union or labor union is an organization dedicated to promoting employee rights and improving employee welfare in a given organization or industry; this is the fulcrum of labor relations.
• The prevalence of unions, both from a geographic and industry standpoint, often significantly impacts the welfare and wage propositions of a substantial number of employees.
• Human resource professionals need to closely monitor changes in labor relations, both to understand the most recent hiring practices and to ensure compliance (if applicable) with union rules and regulations.
• In 2010, union membership in the U.S. hovered around 11%. This is down substantially from historic numbers, and is the lowest in 70 years in the U.S.

Key Term

labor relations

The study and practice of managing unionized employment situations.

The prevalence of unions, both from a geographic and industry standpoint, often significantly impacts the welfare and wage propositions of a substantial number of employees. Unionization is hotly debated, as unions employ collective bargaining on behalf of employees independently from company human resource (HR) policies. The legislative backing and legal framework is complex and ever evolving, both domestically and abroad. HR professionals need to closely monitor this evolution, both to understand the most recent hiring practices and to ensure compliance (if applicable) with union rules and regulations.

The Definition of Labor Relations

While the term is used broadly and in many contexts, labor relations, for our purposes, is the study and practice of managing unionized employment situations. This definition can be expanded to include history, law, sociology, management, and political science, as the existence, evolution, and implications of union development have substantial political, economic, and legal implications.

The Declining Unions

an academic field and in business application. Laissez-faire attitudes and the promotion of free market dynamics are, in many ways, contrary to the legal creation of employee rights. Whether this loss of interest in collective bargaining is a good thing or a bad thing is up for debate, and the power of trade unions is integral to this discussion. Labor relations is a subarea of industrial relations, which is the field of employee/employer relationships. Industrial relations was a more prevalent field of study historically, however, and has seen substantial decline both as an academic field and as a business application. Laissez-faire attitudes and the promotion of free-market dynamics are, in many ways, contrary to the legal creation of employee rights. Whether this loss of interest in collective bargaining is a good thing or a bad thing is up for debate, and the power of trade unions is integral to this discussion.

A trade union or labor union is an organization dedicated to promoting employee rights and improving employee welfare in a given organization or industry. This is the fulcrum of labor relations, and thus central to the discussion of how it is evolving today (compared to how it evolved in the past).

U.S. union membership over time

The above chart is extremely useful in understanding labor-relations trends over the past century or so in the United States. As you can see, the 1930s, during the Great Depression, is when unions began to grow in prominence and power. This held strong for many years, and the decline of unions is a very recent trend in labor relations. Many correlate this decline in unions with the economic struggles of 2008–2009, noting that the rise and fall is between the two worst economic collapses in history.

In 2010, union membership in the U.S. hovered around 11%. This is down substantially from historic numbers, and is the lowest in 70 years in the U.S. Finland, on the other hand, has union participation of 70% (2010) and Canada has 27.5% (2010). Union workers in the United States make anywhere between 10% and 30% more than nonunion workers in the same job, underlining why businesses often oppose unionization and workers often support it.

6.4: Factors Influencing Team Performance

6.4.1: The Role of Social Norms in Teams

Learning Objective

Examine the way teams develop and integrate norms, both social and performance based, in the evolution of the team dynamic

Key Points

• Social norms create expectations and standards for acceptable behavior by team members.
• Norms may develop through explicit conversation among team members or emerge implicitly through the way they interact.
• Norms are different from rules in that, while rules are imposed and required, norms are agreed upon and reinforced through interpersonal relationships.
• By creating accountability and reducing uncertainty, norms can help a team perform effectively.

Key Terms

role

The expected behavior of an individual in a society.

socialize

To instruct, usually subconsciously, in the etiquette of a society.

dysfunctional

Counterproductive or disruptive to effective performance.

Social norms are sets of shared beliefs about how people should behave. Teams and other types of groups develop norms to indicate acceptable ways of interacting. Norms create expectations, set standards, and reflect the collective value of the team members. Once formed, norms are not easily changed.

How Norms Emerge

Teams can create norms through discussions among team members. Often, during the forming phase of team development, members will have conversations about standards of behavior for the group. By doing so, teams can identify and develop norms that support their collaboration and productivity.

Both establishing and maintaining norms are indicators of a team’s maturity, made possible only when members have developed working relationships. Effective norms can develop on their own, especially if team members have prior experience working on successful teams. However, without explicit direction dysfunctional norms such as aversion to new ideas or conflict avoidance may take hold.

Norms vs. Rules

Handshaking as a Norm

In some business cultures, it is a norm to shake someone’s hand upon meeting. Here, one businessman shakes another’s hand. In many situations, it would be normative for the businessman to also shake the nearby businesswoman’s hand.

Norms are different from rules. Rules require or prohibit behavior and are typically issued by someone with the authority to direct others to comply and to impose sanctions if they do not. People might agree or disagree with a rule, but they generally are not free to ignore them. In contrast, norms are sets of expectations, not edicts. Team members themselves agree upon and reinforce norms through how they behave with each other. The clearer and more explicit the norms, especially if they are written down, the more effective they are at influencing team members’ behavior.

Benefits of Norms

Through the process of developing shared norms of behavior, team members begin to hold each other accountable for how they contribute to the team. By pointing out when someone violates a norm, the team helps keep its performance on track.

To the extent that team members can rely on norms to shape behavior, the team may experience less uncertainty and more efficiency in how work gets done. For example, a norm about what constitutes timely completion of tasks may help focus individual efforts. Because people act in accordance with norms, their behavior can become predictable and provide stability to the team.

6.4.2: Team Cohesiveness

Learning Objective

Explain how team cohesion contributes to team performance

Key Points

• Team cohesion is the degree to which individual members want to contribute to the group’s ability to continue as a functioning work unit.
• Cohesiveness develops over time out of interpersonal and group-level attraction, through collaboration, and as a result of a sense of belonging.
• Cohesive teams communicate more effectively, lead to higher member satisfaction, and can create efficiency in resource allocation.
• There can also be negative consequences to group cohesion. If the social pressures of the group intensify, it may lead to conformity and resistance to change.

Key Terms

incentive

Something that motivates, rouses, or encourages.

cohesion

The state of working together or being united.

Team cohesion is the degree to which individual members want to contribute to the group’s ability to continue as a functioning work unit. Members of cohesive teams have emotional and social bonds that link them to one another and to the group as a whole. These ties enable members to sustain their efforts on behalf of the team and make it more likely that the team will achieve its goals.

How Cohesion Develops

Team cohesion develops over time. Social scientists have explained the phenomenon of group cohesiveness in different ways. Some suggest that cohesiveness among group members develops from a heightened sense of belonging, as well as from collaboration and interdependence. Others note that cohesion comes from the interpersonal and group-level attraction common between people who share similar backgrounds and interests. Because teams have clear boundaries regarding membership, barriers to belonging also contribute to cohesion.

Consequences of Cohesion

Team cohesion is related to a range of positive and negative consequences. Cohesion creates a stronger sense of commitment to goals, which motivates higher individual effort and performance. Members of more cohesive groups tend to communicate with one another in a more positive fashion than those of less cohesive groups. As a result, members of cohesive groups often report higher levels of satisfaction and lower levels of anxiety and tension. This can improve decision making and encourage greater participation. Finally, by maintaining membership cohesive teams are able to continue to pursue new goals once they have fulfilled their original purpose. This makes allocation of resources more efficient, since an existing cohesive team can perform well and more quickly than a newly formed one.

Membership in a cohesive team can also have negative consequences. For example, cohesion can intensify social pressure to conform or limit individual expression. Cohesion can also make adaptation more difficult by making group processes inflexible or resistant to change.

6.4.3: Team Roles

Learning Objective

Identify types of team roles and how they contribute to team performance

Key Points

• Team roles are sets of responsibilities and behaviors that establish expectations for how each member contributes to the team’s performance.
• Roles may be assigned formally or assumed by individuals voluntarily.
• Three types of roles are action-oriented, people-oriented, and idea-oriented.

Key Term

interdependent

Mutually dependent; reliant on one another.

A role is a set of related duties and behaviors that exist independently from the person who acts in that role. Roles are part of a team’s structure, and having a role defines each team member’s position in the group relative to the others. Team roles establish expectations about who will do what to help the team succeed.

Roles may be assigned formally to team members or be assumed by individuals voluntarily. Each role is best suited to a person with the necessary skills and experience, since without them it is difficult to achieve credibility or influence on others. Team roles are not necessarily linked to specific work tasks and may even include responsibilities that do not directly contribute to the team’s output.

Common Team Roles

The consultant Meredith Belbin studied high-performing teams and devised a typology based on how members contributed to the group’s success. In his model there are three types of team roles: action-oriented, people-oriented, and idea-oriented.

• Action-oriented roles are pragmatic—they focus on getting things done by taking ideas and turning them in practical plans. We think of these as leadership roles, since what they do can stimulate others to achieve goals.
• People-oriented roles deal with coordinating tasks, supporting communication, and facilitating working relationships. These roles can require negotiation skills, keen perception about human behavior, and good listening abilities.
• Idea-oriented roles involve generating new approaches, analyzing information, and thinking critically about the team’s work. Often these roles are filled by specialists with deep knowledge in a functional area or another type of subject-matter expertise.

Together these roles address both a team’s tasks and how it accomplishes them. Each type of role brings something valuable to how a team functions. When a role is missing because there is no one available to fill it, team performance can suffer.

6.4.4: Team Communication

Learning Objective

Explain the function of effective communication in team performance

Key Points

• A significant part of teamwork involves oral and written communication.
• Teams establish norms for the modes, frequency, and timing of communication between members and among the group.
• Teams use a mix of centralized and decentralized patterns of communication.
• Barriers to effective team communication include lack of shared vocabulary, poor speaking and writing skills, time constraints, and insensitivity to individual differences.

Key Terms

feedback

Critical assessment of information produced.

communication

The exchange of information between entities.

A major part of teamwork is communication. Team members send and exchange information to convey ideas, generate discussion, prompt action, create understanding, and coordinate activities. Effective communication means transmitting a message so that the recipient understands its content and intention. When team members communicate well, they can avoid common pitfalls such as misunderstandings, lack of trust, and conflict that can undermine team performance.

Team members share information in a variety of ways, including face-t0-face meetings and other forms of verbal communication, as well as in writing—through e-mail, texts, and memos. Teams develop practices for how members will communicate with each other and with the group as a whole. Norms typically emerge about preferred modes, frequency, and timing of communication.

Team communication

The basketball team here communicates by forming a huddle.

Patterns of Communication

Communication patterns describe the flow of information within the group and can be described as centralized or decentralized. When centralized, communication tends to flow from one source to all group members. Centralized communication results in consistent, standardized information being conveyed, but often restricts its flow to one direction. In contrast, decentralized communication means team members share and exchange information directly with each other and with the group. This allows information to flow more freely, but often with less consistency in format or distribution. The results can be incomplete, untimely, or poorly distributed messages. Most teams use a mix of the two approaches, choosing centralized communication for messages that are more complex, urgent, or time sensitive, and decentralized communication when discussion and idea generation are needed.

Barriers to Effective Team Communication

There are several barriers to effective communication within teams. These include lack of shared vocabulary or understanding of key task-related concepts, divergent personal styles of expression, and insensitivity to differences in individual characteristics such as age or gender. Good writing and speaking skills are essential to making oneself well understood. Limited time is often another factor in poor communication; understanding requires attention and effort, and it is easy to be distracted from one message by another. Virtual teams, especially those whose members are widely dispersed, can face additional challenges such as differences in language, culture, and time zones.

6.5: Managing Conflict

6.5.1: Styles of Interpersonal Conflict

Team conflict is a state of discord between individuals that work together.

Learning Objective

Explain the distinction between substantive and affective conflicts and between intra- and inter-organizational conflict

Key Points

• Conflict is a state of discord between people, or groups of people working together, caused by an actual or perceived opposition of needs, values, and/or interests.
• Substantive conflicts deal with aspects of performance or tasks and often relate specifically to the project or goals of a team or organization.
• Affective conflicts, also known as personal conflicts, revolve around personal disagreements or dislikes between individuals in a team.
• Organizational conflict may be intra-organizational, meaning it takes place across departments or within teams, or it may be inter-organizational, meaning it arises from disagreements between two or more organizations.

Key Terms

affective

Relating to, resulting from, or influenced by emotions.

substantive

Of the core essence or essential element of a thing or topic.

Conflict is a feature common to social life. In organizations, conflict is a state of discord caused by the actual or perceived opposition of needs, values, and/or interests between people working together. Conflict on teams takes many forms and can be minor, causing only brief disruption, or major, threatening the team’s ability to function and attain its goals. We can distinguish between two type of conflict: substantive and affective.

Substantive and Affective Conflict

Substantive conflicts deal with aspects of a team’s work. For example, conflicts can arise over questions about an individual’s performance, differing views about the scope of a task or assignment, disparate definitions of acceptable quality, or the nature of a project goal. Other substantive conflicts involve how team members work together. These process conflicts often involve disagreements over the strategies, policies, and procedures the group should use in order to complete its tasks.

Affective conflict relates to trouble that develops in interpersonal relationships among team members. While these personal conflicts emerge as people work together, they may have their roots in factors separate from the team’s purpose and activities. Affective conflicts are often based on personality conflicts, differing communication styles, perceptions about level of effort, or personal dislikes based on negative past experiences.

Intra-Organizational and Inter-Organizational Conflict

Both substantive and affective conflicts can be separated into those that happen within an organization and those that happen between two or more different organizations. Intra-organizational conflicts occur across departments in an organization, within work teams and other groups, and between individuals. Inter-organizational conflicts are disagreements between people—business partners, for example, or other collaborators, vendors, and distributors—in two or more organizations.

Arguing wolves

These wolves are expressing disagreement over territory or having some other type of conflict.

6.5.2: The Impact of Interpersonal Conflict on Team Performance

Conflict can have damaging or productive effects on the performance of a team.

Learning Objective

Analyze the way in which conflict can both help and hurt a team’s performance

Key Points

• Conflict is common within teams, especially during the storming phase of team development.
• Team conflict provides benefits including resolving misunderstandings, improving processes, and changing behaviors.
• Team conflict can have negative consequences such as reduced group cohesion and lower productivity, and it can even threaten the team’s existence.

Key Terms

interdependent

Mutually dependent; reliant on one another.

affective

Relating to, resulting from, or influenced by emotions.

Conflict occurs often in teamwork, especially during the storming phase of team development. While at first we might think of all conflict between team members as undesirable and harmful, the process of resolving conflicts can actually provide benefits to team performance. Whether a conflict is productive or not can depend on how team members perceive it, as well as how it affects progress toward the team’s goals.

Benefits of Team Conflict

Substantive conflicts can affect performance for the better by removing barriers caused by different assumptions or misunderstandings about a team’s tasks, strategy, or goals. Conflict can be constructive when it creates broader awareness about how team members are experiencing their work and thus leads to changes that improve members’ productivity. Conflict can also lead to process improvements, such as when it reveals a deficiency in how the team communicates, which can then be corrected. Clashes of ideas can lead to more creative solutions or otherwise provide perspectives that persuade the team to take a different approach that is more likely to lead to success.

Addressing personal conflicts that arise between members can facilitate cooperation by helping individuals adapt their behavior to better suit the needs of others. Although most people find conflict uncomfortable while they are experiencing it, they can come to recognize its value as the team progresses in its development.

Negative Consequences of Team Conflict

While sometimes conflict can lead to a solution to a problem, conflicts can also create problems. Discord caused by enmity between individuals can reduce team cohesion and the ability of team members to work together. Conflicts can create distractions that require time and effort to resolve, which can delay completion of tasks and even put a team’s goals at risk.

Communication can suffer when people withdraw their attention or participation, leading to poor coordination of interdependent tasks. Tension and heightened emotions can lower team members’ satisfaction, increase frustration, and lead to bad judgments. They can even prompt individuals to withdraw from the team, requiring the assignment of a new member or creating a resource scarcity that makes it more difficult for the team to fulfill its purpose. In extreme cases, conflict among members, if left unaddressed, can lead to the complete inability of the team to function, and thus to its disbandment.

6.5.3: Common Causes of Team Conflict

Team conflict is caused by factors related to individual behavior as well as disagreements about the team’s work.

Learning Objective

Identify the causes of conflict within an organization as a conflict manager.

Key Points

• Team conflict arises from how people perceive the actions of others and from differing views of the team’s work and how it should be accomplished.
• Common causes of team conflict include conflicting interests, incompatible work styles, competition over resources, failure to follow norms, poor communication, and performance deficiencies.

Key Terms

ambiguity

Something liable to more than one interpretation, explanation, or meaning.

affective

Relating to, resulting from, or influenced by emotions.

Conflict between team members comes from several sources. Some conflicts have their basis in how people behave, while others come from disagreements about the nature of the team’s work and how it is being accomplished.

• Competing interests: Conflict can arise when people have mutually incompatible desires or needs. For example, two team members with similar skills may both want a certain assignment, leaving the one who doesn’t receive it resentful.
• Different behavioral styles or preferences: Individuals may clash over their respective work habits, attention to detail, communication practices, or tone of expression. While these can affect coordination of interdependent tasks, they can especially inhibit direct collaboration.
• Competition over resources: Members may fight over the limited resources available to accomplish the team’s tasks. For example, if two people both rely on the action of a third person to meet identical deadlines, disagreements might arise over whose work should receive that person’s attention first.
• Failure to follow team norms: A team member creates conflict when she displays attitudes or behaviors that go against the team’s agreement about how it will function. If a group norm calls for prompt arrival at meetings and prohibits the use of mobile devices during discussions, ignoring these practices can engender conflict.
• Performance deficiencies: When some team members are either not contributing their share of effort or not performing at the expected level of quality, the impositions that result can create friction, which may be heightened when critical or highly visible tasks are involved.
• Poor communication: When team members do not share relevant information with each other, people may make decisions or take actions that others consider inappropriate or even harmful. Blame and questions about motives can result, creating discord among the team.
• Ambiguity about means and ends: Lack of clarity about tasks, strategies, and/or goals can lead people to make assumptions that others do not share or agree with, which can result in conflict.

Card game argument

Behavioral differences and personality clashes can cause conflict even among friends.

6.5.4: Constructive Team Conflict

Teams can use conflict as a strategy for enhancing performance.

Learning Objective

Explain how conflict can be used as a strategy for improving team performance

Key Points

• Team performance can benefit by using conflict to foster learning and process improvement.
• Team members can establish guidelines and norms that encourage constructive conflict.

Key Terms

innovation

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

conflict

A clash or disagreement between two opposing groups or individuals.

Teams may use conflict as a strategy for continuous improvement and learning. Recognizing the benefits of conflict and using them as part of the team’s process can enhance team performance. Conflict can uncover barriers to collaboration that changes in behavior can remove. It can also foster better decisions because it makes team members consider the perspectives of others and even helps them see things in new and innovative ways.

Addressing conflict can increase team cohesion by engaging members in discussions about important issues. Team members may feel more valued when they know they are contributing to something vital to the team’s success. Conflict can reveal assumptions that may not apply in the current situation and thus allow the team to agree on a new course. It can also draw attention to norms that have developed without the explicit agreement of team members and create the opportunity to endorse or discard them.

Generating Constructive Conflict

Team members and others can follow a few guidelines for encouraging constructive conflict. First, they can start by explicitly calling for it as something that will help improve the team’s performance. This helps people view conflict as acceptable and can thus free them to speak up.

Teams can lower the emotional intensity of any conflict be establishing clear guidelines for how to express disagreements and challenge colleagues. One helpful norm is to focus on the task-related element of a conflict rather than criticizing the traits of particular individuals. Another is to emphasize common goals and shared commitments, which can keep conflict in perspective and prevent it from overwhelming the team’s efforts.

6.5.5: Team Conflict Resolution and Management

Some ways of dealing with conflict seek resolution; others aim to minimize negative effects on the team.

Learning Objective

Differentiate between conflict resolution and conflict management

Key Points

• Conflict resolution aims to eliminate disagreements and disputes among team members; in contrast, conflict management seeks to minimize the negative effects of conflict on team performance.
• There are three main approaches to conflict resolution: integrative, distributive, and mediating.
• There are three main conflict-management tactics: smoothing, yielding, and avoiding.

Key Terms

dispute

An argument or disagreement.

resolution

The moment in which a conflict ends and the outcome is clear.

adversarial

Characteristic of an opponent; combative, hostile.

The way a team deals with conflicts that arise among members can influence whether and how those conflicts are resolved and, as a result, the team’s subsequent performance. There are several ways to approach managing and resolving team conflict—some leave the team and its members better able to continue their work, while others can undermine its effectiveness as a performing unit.

Conflict Resolution

Teams use one of three primary approaches to conflict resolution: integrative, distributive, and mediating.

1. Integrative approaches focus on the issue to be solved and aim to find a resolution that meets everyone’s needs. Success with this tactic requires the exchange of information, openness to alternatives, and a willingness to consider what is best for the group as a whole rather than for any particular individual.
2. Distributive approaches find ways to divide a fixed number of positive outcomes or resources in which one side comes out ahead of the other. Since team members have repeated interactions with each other and are committed to shared goals, the expectation of reciprocity can make this solution acceptable since those who don’t get their way today may end up “winning” tomorrow.
3. Mediating approaches bring in a third party to facilitate a non-confrontational, non-adversarial discussion with the goal of helping the team reach a consensus about how to resolve the conflict. A mediator from outside the team brings no emotional ties or preconceived ideas to the conflict and therefore can help the team identify a broader set of solutions that would be satisfactory to all.

Although these three approaches all bring overt conflict to an end, team cohesion can suffer if members perceive the process itself as unfair, disrespectful, or overly contentious. The result can be resentment that festers and leads to subsequent additional conflict that a more conciliatory process might have avoided.

Conflict Management

The primary aim of conflict management is to promote the positive effects and reduce the negative effects that disputes can have on team performance without necessarily fully resolving the conflict itself. Teams use one of three main tactics to manage conflict: smoothing, yielding, and avoiding.

1. The smoothing approach attempts to minimize the differences among the people who are in conflict with each other. This strategy often focuses on reducing the emotional charge and intensity of how the people speak to each other by emphasizing their shared goals and commitments.
2. The yielding approach describes the choice some team members make to simply give in when others disagree with them rather than engage in conflict. This is more common when the stakes are perceived to be small or when the team member’s emotional ties to the issue at hand are not particularly strong.
3. In the avoiding approach, teams members may choose to simply ignore all but the most contentious disagreements. While this can have short-term benefits and may be the best option when the team is under time pressure, it is the approach least likely to produce a sense of harmony among the team.

While conflict can increase the engagement of team members, it can also create distractions and draw attention away from important tasks. Because conflict management seeks to contain such disruptions and threats to team performance, conflicts do not disappear so much as exist alongside the teamwork.

5.4: Drivers of Behavior

5.4.1: Defining Attitude

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

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

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

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

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

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

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.

4.4: Technology and Innovation

4.4.1: Technology as a Driver and Enabler 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

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

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

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

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.

3.4: Modern Thinking

3.4.1: Quantitative and Analytical Management Tools

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

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

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

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

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

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.

2.4: Factors to Consider in Organizational Design

2.4.1: Considering the Environment

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

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

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

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.

1.4: Additional Roles and Skills of Managers

1.4.1: Mintzberg’s Management Roles

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

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

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

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

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

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.