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Principles of Management: The Critical Essentials

David M. Leuser, Ph.D. Plymouth State University

Second Edition David M. Leuser, dba Ryan Brook Associates

Table of Contents

Chapter

Page

Chapter 1- Management and Its Environment......................................................................1 Chapter 2- Planning............................................................................................................14 Chapter 3- Organizing........................................................................................................30 Chapter 4- Leading.............................................................................................................54 Chapter 5- Controlling........................................................................................................86

Chapter One Management and Its Environment

Chapter One Outline Management and Its Environment

Introduction General Nature of Management Managers and Employees: Management Levels Managerial Work Managerial Functions Managerial Roles Managerial Skills Differences in Management Functions and Skills by Management Level The Managerial Environment Social and Ethical Environment Global Environment Conclusion

Introduction
The concepts of management and organization are interrelated, and essential to understand for anyone hoping to climb the corporate ladder. An organization is a structured grouping of people performing interrelated tasks to achieve a common purpose, or overarching goal. The common purpose of a work organization is typically to produce goods or services. In the case of a business organization, the overarching goal would typically include making a prot on the sale of those goods or services. Other types of organizations, such as educational, governmental, health care, or not-for-prot organizations, typically have goals focused on scope and quality of service delivery, rather than prot. Organizations form the basis for the work world, where all of us seek employment. The interrelated tasks in an organization are organized into jobs, which are staffed by employees. These jobs/employees are organized into groupings such as departments or divisions. The efforts of individual employees and organizational groupings such as departments must be directed, controlled and coordinated in order to achieve the sub-goals that ultimately allow achievement of the overarching goal. These groupings of employees and reporting relationships among them constitute the organizations structure. The people who make the decisions and take the actions needed to dene, control, and coordinate the activities of employees in the workplace organization are managers. Thus, management is a behavioral function performed by some employees, which facilitates the achievement of an organizations common purpose. It should be noted that effective management is required in all types of organizations. This module focuses on business organizations, which are designed to earn a prot. However, managers are also required in other types of organizations. In fact, specialized educational programs exist to train managers in different industries, such as education (in educational administration), government (in public administration), and health care (in health care administration), among others. The reason for differences in these educational programs is the signicant differences in the challenges and environments facing these different types of organizations. Increasingly, schools of business are adapting their programs to meet the educational needs of managers in these and other not-for-prot industries. This chapter examines the nature of management in business organizations, and the changing environment in which it must be practiced.

General Nature of Management


So how is management typically dened? In the study of organizations, management refers to a process of working with and through people to efciently and effectively use an organizations resources to achieve organizational goals in a changing environment. Note that this denition includes ve essential concepts: (1) working with and through people, (2) utilizing specic resources, (3) to achieve specic goals, (4) in an efcient and effective manner, (5) in a changing environment. Organizational performance refers to the outputs of the management effort. It focuses on the quality of goal achievement (typically, the level of satisfaction of customers with the goods and services provided by the organization), and the efciency and effectiveness of resource utilization in accomplishing that level of goal achievement. The resources utilized in management include human (such as white or blue collar employees), nancial (such as investments or prots), physical (such as raw materials or equipment), and informational resources (such as sales reports or economic forecasts). Efciency refers to the resource costs associated with achieving organizational goals. Organizations are efcient to the degree that they minimize the amount of resources and time needed to produce a given level of goods or services. Effectiveness refers to attaining an acceptable level of quality on appropriate goals in the management process. Organizations are effective to the degree that they accomplish the necessary tasks in such a manner that they successfully achieve their organizational goals. Thus, organizational performance is a measure of how efciently and effectively the management process is able to satisfy customer expectations with the quality of the goods or services produced. If this conception of management sounds a bit complex, get ready for the next challenge. The level and rate of change facing organizations in the 21st century continues to escalate dramatically. Thus, organizations need to concern themselves not only with developing management systems that will satisfy customer expectations efciently and effectively in the present circumstances, but they must constantly adjust those management systems as their environmentand customer expectationschange. Environmental change is an ongoing challenge to organizations. The emergence of a global economy for most products and many services has changed the number and quality of competitors faced by most organizations. This factor, along with changes in the nature of the workforce and expectations of customers, continuous advances in information technology, changing legal and ethical expectations and requirements, are all challenging the management process in organizations large and small. A better understanding of management will allow you to make a stronger contribution to your organization, thereby enhancing both your own career success and your companys competitive advantage. In the 21st century, long term organizational success is always based on competitive advantage.

Managers and Employees: Management Levels


The preceding section described the basics of the process of management in a general and abstract way. However, management is ultimately a behavioral activity performed by employees in a variety of different jobs. In all organizations, there are two general classes of employees: operatives, or those who personally perform the work involved in producing or delivering goods and/or services, and managers, those who facilitate and direct the efforts of that previous, much larger group of employees. Thus, managers are employees who direct, support, and are responsible for the work of others. They dont directly do the essential work of the organization; rather, they facilitate the efforts of others to do that work. Those others are employees called operatives (also sometimes referred to as line workers), because their assignment is to work directly on a specic task with no responsibility for overseeing the work of anyone else. Organizations typically employ three different levels of managers, arranged in a hierarchy from lowest to highest. These are: rst-line managers, middle managers, and top managers. First-line managers are responsible for the daily supervision of a small group of non-managerial (operative) employees. They are often called rst-level managers, supervisors, team leaders, ofce managers, coaches, department managers, unit coordinators, or various other names. They are responsible for developing schedules and action plans that typically produce results within one to two weeks. They focus on the application of established rules and procedures to manage the day-to-day activities involved in completing the work of the organization. Every department in an organization will typically employ one or more rst-line managers. The customer service manager, who oversees a group of twelve customer service representatives, would be an example of a rst-line manager. Middle managers occupy positions between rst-line managers and top managers. They are typically responsible for implementing the policies and plans developed by top managers, and for supervising the work of lower level managers. They typically oversee business units or major departments. Middle managers are referred to by names such as general manager, division manager, department head, project leader, plant manager, among others. They typically develop intermediate range plans for the organization (six to eighteen month projections). They focus on helping lower level managers and operatives to perform their work more efciently and effectively, and on advising top managers of ways in which organizational performance could be improved. They are expected to work effectively with people from throughout the organization. In a manufacturing facility, a plant manager might be responsible for managing inventory, quality control, and general personnel issues within the plant.

Top managers comprise the small group of executives who are responsible for setting the direction and establishing operating policy for the whole organization. They may be referred to by titles such as president, vice president, managing director, chief operating ofcer, chief executive ofcer, among others. Their focus is on the organizations external environment, which they constantly evaluate to identify potential threats and opportunities. They typically develop long-range plans for the organization (three to ve year projections), to deal with these potential threats and opportunities. They are also responsible for coordinating efforts across different departments. Top managers, such as the CEO of a major information technology organization, would be responsible for allocating resources to various departments and functions, determining whether or not to acquire other companies, enter other markets, or expand or reduce facilities.

Managerial Work: Functions, Roles and Skills Managerial Functions


So how exactly do managers facilitate the efforts of others to do the essential work of the organization? Managers do this by performing four critical management functions: planning, organizing, leading, and controlling. All managers in all types and sizes of organizations must perform these essential functions in order to achieve organizational objectives. Planning refers to selecting goals and specic activities or courses of action needed to achieve them. Managers develop plans through a process of decision-making, in which they identify a set of alternatives and then select one of those alternatives for implementation. Organizing refers to identifying specic tasks needed to achieve goals, grouping them into jobs, and allocating authority, responsibility, and resources to allow the tasks to be accomplished. Thus, organizing is used to put plans into action by creating an organizational structure. An organizational structure is a formal system of tasks and reporting relationships among employees that coordinates their efforts to achieve organizational goals. Leading involves motivating employees to work together and perform well while directing and coordinating their activities. By demonstrating a clear vision and energizing employees, managers help them to focus on completing the tasks that will fulll plans and accomplish objectives. Controlling is the process of monitoring performance towards goals and taking corrective action when performance deciencies occur. Managers will monitor the performance of individuals, departments, and the whole organization to make certain that each unit is achieving its goals and objectives according to the overall plan. In cases where performance problems occur, managers must take action to remedy the problem and put the individual or group back on track towards goal achievement.

Managerial Roles
Organizations have a variety of expectations for the performance of their managers. A role is a set of expectations for behavior in a particular setting. Managers have long been recognized as performing three interrelated sets of roles: interpersonal, informational, and decisional. Interpersonal roles govern how a manager interacts with other people. These roles include gurehead (performing ceremonial or symbolic duties), leader (motivating and directing the performance of others), and liaison (coordinating with different individuals or groups both inside and outside the organization). Informational roles focus on gathering and sharing information to facilitate performance. These roles include monitor (seeking and collecting information), disseminator (transmitting information to those who need it), and spokesperson (transmitting ofcial information to people outside of the organization). Finally, the decisional roles are carried out though making choices and taking actions in varying circumstances. These roles include entrepreneur (initiating innovation and change), disturbance handler (resolving conicts and taking corrective action), resource allocator (making decisions regarding the use and distribution of people, time, equipment, budget, and other resources), and negotiator (bargaining, reaching agreements and compromises).

Managerial Skills
In order to carry out these varied roles, managers require a broad range of skills. Three sets of skills are generally recognized as critical for managerial success. These include conceptual skills, human skills, and technical skills. Conceptual skills are cognitive, analytic, and abstract reasoning skills, including the ability to diagnose problems and identify solutions. Conceptual skills include the ability to understand the organization as a whole, to see the relationship between its parts and how the whole and the parts are affected by and inuence the external environment, including customers, competitors, regulators, social and economic forces, and other factors. Human skills refer to the interpersonal and communication skills needed to understand others, and to motivate and coordinate the efforts of individuals and teams. Managers need people skills to relate to and collaborate with others. They need to be able to work effectively in groups and teams. They must demonstrate sensitivity to the thoughts, feelings, needs, and views of others. They need to be able to draw out the reactions, ideas, and viewpoints of coworkers and subordinates. Technical skills include the ability to use specic job-related methods and techniques to perform a task. This would include using the procedures, techniques, knowledge, and tools basic to a specialized eld to accomplish work related tasks.

Differences in Management Functions and Skills by Management Level


Managers at all levels will always perform all three categories of managerial roles. However, there are typically signicant differences between top, middle, and rst-line managers in the relative focus on specic skills and functions. Top managers tend to primarily use conceptual and human skills, and generally focus on planning and organizing. Middle managers tend to use a balance of all three types of skills and all four functions. First-line managers, however, tend to emphasize technical and human skills, and will normally focus on leading and controlling to effectively perform their supervisory jobs.

The Organizational Environment


Business organizations exist in a competitive environment. Typically, there are multiple different companies all trying to make a prot by selling a similar product or service. Customers select from among these multiple organizations to do business with only one or a few companies. One of the most critical concepts in modern management is the notion of competitive advantage. Competitive advantage refers to the ability of an organization to outperform competing organizations by producing desired goods or services more efciently and effectively than those others, and thereby providing greater value for customers. When customers perceive greater value for their investment of time and money, they will typically make their purchases from those higher value organizations. Thus, companies are constantly trying to cut costs, improve quality, create new and better products, and add value to the customers transaction, while maintaining protability. In this way, companies can improve their market share, increase their protability, and continue to grow. As mentioned earlier in this chapter, environmental change is an ongoing and constant challenge to organizations. As circumstances change in the business environment and new trends begin to develop, companies must constantly adjust their products, prices, strategies, and operational practices in order to continue to satisfy customers. The companies that do the best job of satisfying customers typically attract the largest market share, and are the most successful. To understand the nature of this challenge, the competitive environment facing organizations and managers must be understood. All organizations have both an internal and an external environment. The internal environment consists of the conditions and forces that exist within the boundaries of the organization, such as company culture and characteristics of employees and management, that affect its activities or performance. The external environment is a set of conditions, events, and forces that exist outside of the boundaries of the organization, and have the potential to inuence or affect the organization.

The external environment consists of two components: the task (or specic) environment and the general environment. The task environment, which is sometimes called the specic environment, consists of the actual groups and resulting conditions that directly affect the organizations operations and performance. The task environment consists of customers, competitors, suppliers, regulators, strategic partners, and advocacy groups, among other possibilities. Specic individuals or groups in the environment that are directly affected by, or have an interest in the organizations performance are frequently referred to as stakeholders. Thus, the task environment consists of a combination of stakeholders and conditions (resulting from the actions or characteristics of stakeholder groups) that directly impact the organizations performance. On the other hand, the general environment consists of a set of wider conditions and forces that form the overall context of the organization, but inuence it only indirectly. The general environment thus consists of broader economic, sociocultural, technological, political-legal, and global forces that may affect the organization and its task environment. Specic issues related to the internal and task environments of organizations will be discussed in later chapters. This chapter will conclude by outlining important aspects of the task and general environment facing organizations in two frequently identied categories: the social/ethical environment and the global environment. The internal environment of the organization includes organizational structure and job design, corporate culture, characteristics of employees and other stakeholders, as well as technology and physical facilities. The critical concepts here have to do with people and culture. Several different categories of people are relevant to the internal environment. These include employees (managers and operatives as described above), owners (the individuals who have property rights to the organization), and in larger organizations, a board of directors. A board of directors is a governing body that is elected by stockholders and charged with overseeing the general management of the organization to ensure protection of the stockholders interests. At times, the needs and goals of these various groups can be at odds, creating challenges for management. For example, the board might feel pressure from stockholders to increase the size of the dividend, and therefore pressure management to hold down costs by working employees overtime rather than hiring new staff. However, workers may not want to continuously work overtime. Such conicts have led to strikes in unionized organizations.

The most critical component of the internal environment of the organization is organizational culture, often referred to as corporate culture. Organizational culture refers to the set of values, beliefs, attitudes and shared expectations that inuence the way in which individuals and groups work together in an organization. Each organizations particular pattern of shared assumptions, values, beliefs, customs, and attitudes is learned by members of the organization as they cope with the challenges of their work, and is typically taught to new recruits through a process known as organizational socialization. Organizational socialization refers to the process by which new members of an organization learn the values, norms, and expected ways of working necessary to perform their jobs effectively in that organization. Employees will typically behave in ways that reward or reinforce behavior that is in line with organizational culture and values, and will punish or dissuade behavior that deviates from those norms. Through such learning processes, culture is thus the foundation of the organizations internal environment, and it constantly inuences the behavior of employees and managers alike. Organizational culture exists at two levels: observable and unobservable. At the observable, or visible level, are physical artifacts and common behaviors, such as patterns of dress, ofce layout, and company slogans, ceremonies, stories, or heroes. At the deeper or unobservable level are the values, beliefs, and shared understandings that bind members of the organization together. While these cannot be directly observed, they can be inferred from the explanations and justications that employees provide for their actions and behavior. Thus, in most organizations a set of shared values, assumptions, and beliefs subconsciously inuence the behavior of employees to adhere to certain behavioral patterns or expectations. These fundamental values, assumptions, and beliefs can be understood by analyzing the observable manifestations of culture.

Social and Ethical Environment


As an aspect of the task and general environments, the social and ethical environment includes a variety of social forces and conditions that inuence the effectiveness of managerial actions, and thereby can affect competitive advantage. For example, dramatic increases in the diversity of the workforce have been posing increasingly complex challenges to managers over the past thirty-ve years. The term diversity refers to similarities and differences among employees across a variety of dimensions, such as gender, race, age, ethnicity, religion, sexual orientation, socio-economic background, and ability/ disability. A related concept, multiculturalism, focuses on broader issues of differences in customs, attitudes, values, beliefs and behaviors across members of different national cultures. There has been increasing emphasis on effectively managing diversity and multiculturalism in organizations as a result of globalization (discussed in the next section) as well as increased legislation and legal actions taken at the national level. The concept of the glass ceiling refers to an invisible barrier to advancement into upper management ranks by women and minorities.

Since the dominant culture in most organizations is still based upon the behavior and attitudes of white males, managing diversity is often a contentious issue. Yet, companies are increasingly realizing that the effective management of diversity can increase their competitive advantage, since increasingly their customer base consists of women, people of color, and other ethnic minorities. There are strong arguments made for how diversity and multiculturalism contribute to competitiveness, including (1) organizations that are known as good places for women and minorities to work will attract the highest quality talent among those groups and will have lower levels of turnover and absenteeism; and (2) organizations with diverse and multicultural workforces will demonstrate greater levels of creativity, exibility, problemsolving ability and ability to understand and appeal to different market segments than less diverse organizations. On the other hand, managing a diverse and multicultural workforce can be challenging, since differences in ideas, attitudes, behavioral styles, and opportunities can often breed conict. Thus, strong human skills and the effective management of conict are critical to realizing the potential of a diverse and multicultural workforce. Issues regarding fair treatment of women and minorities in the workplace represent one manifestation of concerns about ethics and social responsibility. The concept of ethics refers to moral principles, values or beliefs that are used to make decisions about what is good or bad, right or wrong, in behavior, actions, or decisions. Values are relatively enduring beliefs that people hold regarding which outcomes or courses of action are good or desirable. Ethical behavior is thus behavior that is judged to be good or right, as opposed to bad or wrong, given some particular set of values or evaluative principles, such as a formal ethical code, legal standards, or generally accepted social norms. An ethical dilemma is a situation in which an individual must make a decision that might be construed as unethical. Ethical behavior can be increased in organizations when companies adopt a code of ethics, which is a formal statement of the organizations values and ethical principles offering guidelines on how to behave in such situations. Employees who disclose illegal, immoral, or illegitimate actions or practices by their employers in order to maintain ethical standards are referred to as whistleblowers. Society generally sees it as appropriate and desirable to protect such individuals from retaliation by their employer (such as being red). Laws protecting whistleblowers are one manifestation of the concept of corporate social responsibility. In management, the term social responsibility refers to the belief that organizations have a duty to behave ethically, in a manner that benets employees and the larger society as well as the organization. Thus, it is often argued that while organizations have an obligation to serve multiple stakeholder groups, (including employees, customers, suppliers, investors, creditors, regulators, and social interest groups), they need to go beyond their legal and economic obligations to stakeholders to take actions that provide greater benets to society.

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The maintenance of ethical behavior and demonstration of social responsibility in organizations is ultimately the charge of top management, though it must be implemented appropriately at all levels of management. Issues relating to diversity, multiculturalism, and the management of ethical dilemmas such as whistleblowers or the glass ceiling can impact on the willingness of individuals and organizations to do business with a rm. In this way, poor management decisions can hurt the organizations competitive position.

Global Environment
During the past 25 years, communication has become faster and less expensive, trade barriers between nations have been reduced, and consumer preferences have been converging in a variety of areas. As business organizations have adapted to (and contributed to) these changes, supplies of resources, product markets, and business competitors have become worldwide in scope, constituting a global economy. Globalization refers to the ongoing process by which resources, markets, and organizations are becoming interdependent and competitive throughout the world. This results in a tremendous amount of uncertainty for organizations, and an increasingly difcult competitive environment facing business. All organizations, large and small, must consider the global implications of their actions or inactions. No nation or organization is safe from the effects of foreign competition. Indeed, the most effective organizations are embracing globalization as a source of cheaper labor and supplies, as well as larger product markets. As organizations venture out into the global marketplace, they become international businesses. International business takes several forms. One popular analysis identies four levels of international activity that can be used to classify organizations. At the lowest level of internationalization, a domestic business does all of its resource sourcing and product or service sales within one country. Larger rms in the 21st century tend to be either international or multinational in scope. An international business is primarily based in a single nation, but gains a signicant percentage of its resources or sales from other nations. A multinational business utilizes a global market to obtain all of its resources and sell all of its products. At the highest level of internationalization is the global business. A global business transcends national boundaries, and has no single home country, as ownership, control, and top management are dispersed across several nations. A variety of trade related developments demonstrate growing global economic integration. During the 1990s 124 countries agreed to adopt the General Agreement on Tariffs and Trade (GATT), which resulted in large decreases in both tariff and nontariff barriers to trade, making it easier for consumers worldwide to buy foreign products. In the mid-1990s, the World Trade Organization (WTO) replaced GATT, but still uses primarily tariff concessions to increase trade. Countries that are members in the WTO agree to limit tariffs on imports from other member countries.

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The most favored nation provision of GATT requires each member country to grant all other member countries the most favorable treatment that they provide to any country regarding imports and exports. In addition to GATT and the WTO, a number of regional trading zones have been developed that reduce both tariff and nontariff barriers for countries within the trading zone. One example is the formation of the European Union (EU), where over 25 independent countries have agreed to remove barriers to cross border trade and business development in order to boost economic growth for all involved. In the Americas, the signing of the North American Free Trade Agreement (NAFTA) has signicantly opened up the ow of goods and services, workers, and investments among the United States, Canada, and Mexico. Finally, the Association of Southeast Asian Nations (ASEAN) is a trading alliance of 10 Southeast Asian nations, including Cambodia, Vietnam, Singapore, Indonesia, Malaysia, and the Philippines. This area is expected to be one of the fastest growing economic regions in the world, and may eventually rival the EU and NAFTA in economic power. International business involves conducting commercial transactions across national borders. Five forms of international business have become increasingly common. These include: (1) global sourcing, in which materials or components are purchased in other countries for assembly in the home country, or in which some jobs are done in other less expensive countries through the use of information technology (widely known as outsourcing); (2) importing/exporting, in which foreign products are purchased and sold in domestic markets, or domestic products are sold in foreign markets; (3) licensing/franchising agreements, in which a foreign rm pays for the rights to produce or sell another rms products (licensing), or in the case of franchising, where a foreign rm licenses the right to conduct the entire business in a certain area; (4) strategic alliances in which two or more rms jointly cooperate for mutual gain. One popular such form is the joint venture, in which companies form strategic alliances to combine resources, costs, risks, technology, and people to form a third, jointly owned company; and (5) direct investment, in which an organization headquartered in one nation buys or builds facilities or subsidiaries in another country. One popular form of direct investment is the wholly owned subsidiary, where ofces, facilities, or manufacturing plants are completely owned and controlled by a foreign company. International management involves managing business operations in more than one country. Such management can be particularly challenging in practice, due to issues of diversity and multiculturalism. National culture reects the set of values, beliefs and normative behaviors that are accepted and approved in a given society. National culture affects the perceptions, decisions, and behavior of people from that country. Five cultural dimensions have historically been found to consistently characterize national culture across different countries.

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These include (1) individualism-collectivism (an emphasis on self-sufciency versus group welfare; (2) power distance (degree of acceptance of large differences in power among people and institutions); (3) uncertainty avoidance (degree of discomfort versus tolerance for risk, change, and uncertainty); (4) masculinity-femininity (emphasis on achievement and assertiveness versus relationships and nurturance); and (5) time orientation (emphasis on short-term versus long-term thinking). In an attempt to update these dimensions to ongoing global changes, the Global Leadership and Organizational Behavior Effectiveness (GLOBE) research program was undertaken in 1993. This is an ongoing investigation of leadership and national culture that has identied nine dimensions on which national cultures differ. The GLOBE study demonstrates the validity of the classical ve dimensions described above, but added several new dimensions and updated the status of various countries on each dimension, as national cultures do indeed change over time. Because of such differences, people from different national cultures may react differently (more positively or more negatively) to the same management practices. In fact, people worldwide have a tendency to be ethnocentric, believing that their cultural beliefs and practices are better than those of other cultures. In order to maximize efciency and effectiveness and continue to adapt to the rapidly changing global competitive environment, it is often necessary to tailor management practices to the cultural context in which the organization is operating. In this way, a culturally diverse management staff can provide a competitive advantage to the rm.

Conclusion
This chapter has outlined the general nature of management and the environment within which it is practiced. We have described management as a process of working through people to achieve organizational goals. We noted that managerial work is done at three levels: top, middle, and rst-level management, and that all managerial work typically involves four functions, three roles, and three sets of skills. We noted that business organizations exist in a competitive environment, comprising internal, task, and general components. We explored not only the social and ethical environment, but also the global environment facing managers in some detail. We concluded that effective management decisions are required in response to such aspects of the organizational environment in order to maintain competitive advantage.

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CHAPTER TWO Planning

Chapter Two Outline Planning

Introduction Overview of Planning Categories of Plans Strategic, Tactical, and Operational Plans Contingency Plans Strategic Management Corporate Strategy Business Strategy Functional Strategy Strategic Implementation Managerial Decision Making Overview of Problem Solving and Decision Making The Process of Decision Making Individual versus Group Decision Making Organizational Learning and Creativity Conclusion

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Introduction
In the previous chapter we dened an organization as a structured grouping of people performing interrelated tasks to achieve a common purpose, typically involving the production or distribution of goods or services. In this chapter we explore how members of organizations are able to coordinate their efforts to all be pulling in the same direction, and thereby achieve that common purpose. The concept of planning, developed around a mission statement and related goals and objectives, provides the key to an organizations success in unifying efforts towards that end.

Overview of Planning
The most effective organizations specify the common purpose that unites their efforts in a formal, written document. The mission statement identies the common purpose or overarching goal of the organization, and typically identies the products or services produced and customers served in a manner designed to differentiate the organization from its competitors. The mission statement will typically describe both the current status of the organization and its vision for its future status. In order to accomplish its mission or overarching goal, the various employees, managers, and organizational units must each achieve individual, coordinated goals or objectives. Managers typically use the terms goal and objective interchangeably. Goals or objectives are thus specic, measurable outcomes or targets that managers and organizational units are expected to achieve within a specied period of time. Put in an organizational context, planning involves setting goals and objectives in a coordinated and hierarchical fashion across the various levels and work units in an organization in order to focus all efforts toward achievement of the organizations mission and long term goals. Managers develop plans through a decision making process in which they identify a set of alternatives and select one of those alternatives for implementation. Planning is important in organizations because it provides a variety of potential benets. It helps managers to systematically assess the components of the internal and external environments that may impact its performance. It can help an organization to deal more effectively with uncertainty by developing alternative action plans for use under different future circumstances. In addition, planning claries desired outcomes, establishes priorities for employees, coordinates efforts across individuals and work units, and forms the basis for organizational control by specifying performance standards.

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It is important to note that planning is not risk free for an organization. There are several potential risks involved in planning. Planning is based upon objective and subjective assessments and assumptions about the environment. If managers do not maintain vigilance in their monitoring of the environment, they can easily become complacent and continue to implement outdated plans that will no longer effectively meet emerging environmental challenges. Worse yet, if the assumptions underlying the plans are wrong, the effects of planning can be negative from the outset. Finally, there must be a link between the developers and the implementers of a plan. Plans imposed from the top on lower level managers and employees may not be embraced and supported. As we will see later, this is where the role of participation in decision making can become critical. Since planning involves the coordinated setting of goals and objectives, the concept of goal setting is critical to the planning process. In a general sense, goal setting entails identifying objectives in specic, measurable terms with a target date for completion. Goals serve four purposes in organizations: (1) they provide guidance, direction, and legitimacy for actions and behavior; (2) they form the basis for effective organizational planning; (3) they provide a challenge that can motivate workers to perform at their best; and (4) they provide a means for evaluating and controlling the performance of individuals and work units. There are several characteristics of effective goals. Such goals are specic and measurable, challenging but attainable, based on a concrete timeframe for completion, and clearly prioritized in terms of importance. In addition, goals that are accepted by employees typically lead to higher levels of performance. Thus, it is highly desirable to allow subordinates to participate in goal setting, in order to enhance their commitment to the successful accomplishment of their objectives. Managers who apply these principles to their goal setting activities are typically more effective than those who do not.

Categories of Plans
Managers and organizations use a variety of different kinds of plans to coordinate their efforts and ensure goal attainment. Plans vary in terms of their timeframe, level of implementation, and operational focus. The most widely used approaches to planning in organizations can be encapsulated in a few categories.

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Strategic, Tactical, and Operational Plans


This is the most general category of organizational plans, and reects the concept of the cascading of goals or objectives as the essence of effective planning. What this means is that goals at lower levels of the organization should be directly linked to the achievement of goals at higher levels of the organization. In this context, long-term strategic plans are generally developed by top managers encompassing a two to ve year timeframe. These plans focus on products, services, customer base, and mechanisms for maintaining a competitive advantage. They entail objectives for the entire organization, describing goals to be accomplished in the near future. The primary purpose of strategic plans is to link the plans of different organizational units so that they all support the organizations business strategy and help to accomplish the organizations mission. Specic examples of strategic plans will be discussed in the section on strategic management. Next, intermediate term tactical plans are typically developed and implemented by middle managers, encompassing a six month to two year timeframe. These plans focus on how the organization will allocate resources and use employees to accomplish specic goals related to its strategic plan. At the tactical level, division or department managers identify specic goals and activities that need to be performed within a given timeframe, and allocate resources to make that happen through the budgeting process. One popular management tool often used to develop and implement tactical plans is management by objectives, or MBO. MBO is a management process in which a manager and subordinate meet periodically to participatively set goals, discuss progress towards their achievement, and revise those goals as necessary over time. Finally, rst-line managers are responsible for developing and implementing short term operational plans, which are expected to produce results within weeks or months (typical timeframes would include 30 days to six months). Operational plans guide the day-to-day activities of non-managerial or operative employees by directing their behaviors and priorities in the short term. Operational plans include single use plans, standing plans, and budgets. Single use plans are designed to cover unique, specic circumstances that are not expected to recur. Programs and projects are typical examples of single use plans. Developing a project schedule to manage a merger between two banks would be an example of such a plan.

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Standing plans are designed to manage repetitive situations. Thus, the plan can be developed once and repeatedly applied whenever the event recurs, saving managers time and effort. Examples of standing plans include policies, procedures and rules and regulations. Policies provide general guidelines for making decisions or taking actions in response to a particular event or set of circumstances. Procedures are more concrete than policies, laying out a series of steps to be implemented under specic circumstances. They are sometimes referred to as standard operating procedures (SOPs). Rules and regulations get even more concrete than procedures by providing detailed specics regarding exactly what actions must or must not be performed. These various forms of standing plans may be developed to deal with a variety of problems faced by different departments, such as dealing with dating or sexual harassment complaints between coworkers, or responding to a dissatised customer who demands an immediate refund. The nal type of operational plan to be discussed is the budget. A budget is a plan that commits specic resources to a project or activity for a dened period of time. Budgeting forces managers to carefully analyze and prioritize goals, since the allocation of resources within a budget will typically have a strong impact on the resulting level of goal attainment. Note that while it is being developed, a budget is a planning tool. However, once implemented, it becomes a control tool. It should be noted that since budgeting typically covers a nite period of time, (i.e., the scal year), it may also be considered an example of a single use plan.

Contingency Plans
A variety of techniques are useful in developing plans to deal with change or unexpected developments that can face organizations dealing with highly uncertain environments or long timeframes for planning. The general term for this type of plan is the contingency plan. A contingency plan is one that species alternative actions to be taken if uncontrollable events occur, such as emergencies or unexpected conditions. Two types of contingency plans are scenario plans and crisis management plans. Scenario planning entails developing plans to deal with several potential future trends, events, or circumstances that might affect the organization. Companies that develop different plans with different assumptions about the price of oil over the coming year would be an example of this. Crisis management planning entails developing plans to deal with potentially serious problems or disasters before they occur, and emphasizes three stages of prevention, preparation, and containment. A company that developed a plan to deal with the effects of a bird u pandemic in humans on its global operations would be demonstrating crisis management planning.

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Strategic Management
In this section we elaborate on the concept of strategic planning. The essence of strategic management of an organization is gaining and maintaining competitive advantage. Recall from the previous chapter that competitive advantage refers to the ability of an organization to outperform competing organizations by producing desired goods or services more efciently and effectively than those others. Strategic management deals with attempts to develop a superior competitive position in the organizations environment. A strategy is a comprehensive plan for pursing the organizations mission that guides resource allocation to facilitate achievement of the organizations long-term goals. Strategic management has been dened as the process of formulating and implementing strategies to create competitive advantage and achieve the organizations mission and goals. Thus, strategic management entails two stages: strategy formulation and strategy implementation. Strategy formulation involves the planning, analysis, and decision making that lead to the development of goals and a strategic plan. Strategy implementation involves the allocation of resources necessary to achieve strategic goals, and the ongoing oversight of the implementation process. The strategic management process typically begins with an examination of the organizations current mission, strategy, and goals. Strategy formulation typically involves a situational analysis, which provides an assessment of the organizations current competitive position. A situational (SWOT) analysis involves an assessment of factors likely to affect the organizations performance, including strengths (S) and weaknesses (W) present in the organizations internal environment, and opportunities (O) and threats (T) present in its external environment. Strengths are positive factors within the organization that they can capitalize upon to achieve their goals, such as the quality of their products and employees, their high credit rating, or efcient production facilities. Weaknesses are negative factors that could inhibit the achievement of goals, such as increasing turnover among employees, declining market share, or reduced prot margins. Opportunities refer to factors in the external environment that may facilitate the organizations achievement of its goals, such as nancial problems for a major competitor, or the opportunity to outsource production to lower cost overseas facilities. Threats are aspects of the external environment that may hinder the organization from achieving its goals, such as the potential entry of a major new competitor to the marketplace, or changes in regulatory policy that could increase costs. Once a SWOT analysis is completed, top managers are in a better position to determine what sort of grand strategy is appropriate for the rm. The development of a grand strategy may entail revision or renement of the mission statement, and will typically include revision of existing strategy and goals.

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Corporate Strategy
Strategy formulation takes place at three levels: corporate, business, and functional. Corporate strategy sets the direction for the entire rm, including all business units and product lines. This type of strategy involves a general action plan by which a rm intends to achieve its long-range objectives. Corporate strategy essentially answers the question: What businesses are we in? At this level, top managers decide on the mix of businesses or the number of industries that they will compete in. Large corporations, such as General Electric, Hewlett Packard, or Exxon-Mobile, often compete in a variety of businesses across a wide range of product lines. Corporate strategy helps them to manage these businesses and product lines. Corporate level strategies are often referred to as grand strategies. Four types of grand strategies are often identied: growth, stability, retrenchment, and global. A growth strategy may be deployed internally by investing in expansion (such as new product development or entering new markets). When expansion is done within the same business area, it is referred to as a concentration strategy. Another possibility is to grow externally, by acquiring new businesses. Growth that is achieved by creating or purchasing new businesses that are related to the core business is known as concentric (or related) diversication. Growth that is achieved by purchasing or managing unrelated businesses is known as conglomerate (or unrelated) diversication. Growth through vertical integration involves diversication by forming or acquiring businesses that serve the primary business, such as the acquisition of suppliers or distributors. A stability strategy implies that the organization wants to remain at its current size or grow only slowly. A retrenchment strategy entails a period of decline, typically by shrinking or selling off current business units. In this regard, liquidation refers to terminating the existence of a business unit by selling the assets for their cash value. Divestiture involves selling off business units no longer deemed critical to the organizations mission. Finally, companies my decide to pursue a global strategy. Depending upon their choice for developing and marketing products around the world, companies might use several different global strategies. Globalization adopts standardized product lines and advertising strategies worldwide. In a multidomestic strategy, the organization customizes products and advertising to match the local needs of different countries or regions. A transnational strategy attempts to combine the efciencies of global operations with responsiveness to local needs. This tends to be a very difcult and challenging strategy. Other approaches to grand strategy also exist, such as e-commerce, or cooperative strategies such as the joint ventures or strategic alliances discussed in the previous chapter.

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Business Strategy
A business strategy is the strategy for a single business unit or product line, dening a competitive approach to a specic industry or market. For a large corporation, business strategy essentially answers the question: How do we compete in each of our major businesses? In smaller rms, only a single product or single industry may be involved. In this case, there is no difference between corporate strategy and business strategy. Again, there are a variety of different business strategies that could be cited. Among the most widely used are low cost, differentiation, and focused strategies. A low cost strategy is designed to gain advantage over competitors by being a lower cost producer of the product or service. Wal-Mart, of course, uses this strategy. A differentiation strategy focuses on distinguishing the organizations products from those of competitors along important dimensions, such as design or quality. Coca Cola uses this strategy and attempts to create a unique image for its product. Finally, a focused strategy aims at a smaller, rather than a larger market segment. For example, Cott follows a focused low cost strategy (attempting to be the low cost producer of retailer branded beverages, such as Wal-Marts Sams brand sodas), while BMW follows a focused differentiation strategy (producing high quality cars for high income customers). Essentially, a business strategy is designed to set the competitive direction for the business unit or line specied in the corporate strategy, with the exception that in smaller organizations, corporate and business strategies are one and the same.

Functional Strategy
Finally, functional strategy sets direction for the operational support of corporate and business strategies. Functional strategy essentially answers the question: How do we support the business level competitive strategy? It involves all of the major functional departments within the organization. A functional department is one that is responsible for one of the basic business functions required to operate and manage the business, such as marketing or nance. Functional strategy would thus include plans developed and implemented by managers in the human resource, production/operations, marketing, nance, research and development, and other departments. Such plans would typically be designed to lower costs to the organization, or to add value to the product or service. Relevant departmental activities might include identifying new customers, developing more efcient production designs, reducing absenteeism and turnover, tailoring the product to meet specic customer needs, reducing shipping time to customers, or developing innovative training programs.

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Strategic Implementation
The preceding sections have covered strategy formulation in detail. A few brief comments on strategy implementation are in order. Effective strategy implementation requires managers to allocate resources and responsibilities for components of their plans to specic individuals and units, to draft detailed implementation plans, including the goals and timetables mentioned earlier, and to hold individuals accountable for their assigned duties.

Managerial Decision Making Overview of Problem Solving and Decision Making


So far in this chapter we have described the general planning process, the various forms it takes in organizations, and explored how planning forms the basis of the strategic management process that ultimately determines a rms competitive effectiveness in its environment. Now it is time to take a detailed look at the nature of the decision making process that underlies not only the development of plans, but ultimately all management activities. In order to perform the basic managerial functions of planning, organizing, leading, and controlling, managers must continually make decisions. Decision making refers to the process of choosing a solution to a problem, or a course of action, from a set of alternatives. A decision is thus a choice made from among a set of alternatives. Managers typically need to make decisions when they are confronted with problems. A problem is a discrepancy between an existing state of affairs and a desired state of affairs. Problem solving involves a process of identifying and resolving problems. Managers typically make two kinds of decisions in response to two different kinds of problems that they face. Problems may be structured or unstructured, and corresponding decisions may be programmed or nonprogrammed. A structured problem is one that is straightforward, clearly dened, familiar, and often routine and recurring. Structured problems call for programmed decisions. A programmed decision is a routine process that follows existing decision rules or guidelines to apply a solution from past experience to a similar or recurring problem. Reordering supplies when they become depleted is an example of a programmed decision. Many of the day to day problems faced by managers call for programmed decisions.

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An unstructured problem is one that is complex, unfamiliar, nonroutine, and not clearly dened, characterized by numerous ambiguities and information deciencies. Unstructured problems call for nonprogrammed decisions, since established routines or procedures cannot be used. A nonprogrammed decision is a customized, nonroutine and often unique process developed in response to unusual or novel problems, opportunities, or threats. Intuition and judgment are more important than decision rules in nonprogrammed decision making, since new, different, and creative approaches are required. Experienced managers may face fewer unstructured problems, but those they face are often very signicant, calling for careful deliberation in order to make an effective decision. Applying a model of decision making to the overall process (such as the classical model discussed below) can typically enhance the quality of such nonprogrammed decisions. Most strategic decisions made by top managers such as mergers, acquisitions, or restructuring are nonprogrammed decisions, with potentially serious consequences resulting from inappropriate decisions. The difference between structured and unstructured problems revolves around the concept of uncertainty. Uncertainty refers to the level of completeness of information needed to make the decision. If a manager has complete information, a state of certainty exists. Under these circumstances, programmed decisions are appropriate. When partial information is available, the manager faces conditions of risk. Here, alternatives may be evaluated in terms of their probable level of success, and nonprogrammed decisions made with a general level of condence in their appropriateness, such as Im 80% certain this solution will work, or We have a 50/50 chance on this one. At the other extreme, where very little information is available, the manager faces a state of uncertainty. Under these conditions, the manager does not know all the potential solution alternatives, and cannot assign probabilities to outcomes. These are the most difcult decision making circumstances for managers. Here nonprogrammed decisions must be made, typically involving creative problem solving (discussed in more detail below). Since unstructured problems in highly uncertain environments require novel and innovative solutions, groups of managers are frequently involved in the problem solving effort.

The Process of Decision Making


A basic step-by-step model of the decision making process is generally recognized in the management literature. It is often referred to as the classical or rational decision making model, and is viewed as a prescriptive model of what managers ought to do to make decisions. A prescriptive model does not try to describe what managers actually do; rather, it tries to specify the procedures that managers should follow to come up with the best decision. Although different formulations of the steps may be presented, the basic model species six steps: (1) Recognize and dene the problem; (2) Generate alternative solutions; (3) Evaluate the alternative solutions; (4) Select the best alternative; (5) Implement the chosen alternative; and (6) Evaluate the results. The following discussion will elaborate on these steps.

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Recognize and dene the problem. The rst step is to realize that there is a problem that requires attention. Typically, some event or procedure will identify a gap between the current situation and the ideal situation that the organization would prefer. A drop in stock price or market share, a series of related customer complaints, or an increase in turnover might all signal problems that need to be addressed. Unfortunately, sometimes problems exist and grow, but managers do not realize they are there. The example of the U.S. government intelligence services not connecting the dots to associate known or suspected terrorists coming into this country to learn to y airliners in the air only, (with no concern for take-off or landing), has often been cited as one of the most serious gaps in intelligence work to date. Of course, recognizing that potential problem represented here might have allowed the horrible tragedy of the September 11, 2001 destruction of the World Trade Center to be averted. This example illustrates how important it is that managers have a comprehensive understanding of the problem, including its causes and its relationship to other factors. It is at this stage that managers need to determine whether they are facing a structured or an unstructured problem. Generate alternative solutions. Once the problem has been recognized and properly dened in terms of causes and relationships to other factors, the manager needs to begin to identify potential solutions. If the problem is a structured problem, then a routine, programmed solution may immediately be implemented. In the case of an unstructured problem, the manager must seek creative solutions. Note that our presentation of this model separates the generation of alternatives from the evaluation of alternatives. There is a very important reason for this. Creative problem solving is hindered by premature evaluation of alternatives. It is important at this stage to generate as many potential solutions as possible, without concern about their overall feasibility in terms of implementation or acceptability to different stakeholder groups. Often the generation of one alternative leads to creative ideas for others. It can also be helpful to include a group of people in this process, since groups typically provide a greater diversity of insight and opinion, and often develop more innovative solutions than people working individually. These characteristics underlie the technique of brainstorming mentioned below. Evaluate the alternative solutions. Once the broadest possible array of potential solutions to the problem have been identied, the manager should evaluate each solution carefully. There are no generally accepted procedures for this step. We argue that alternatives should be evaluated in terms of feasibility (Is it realistic and practical, given our circumstances and resources?); legality and ethics (Is it within the law, and will the solution be viewed as ethical and appropriate by our stakeholders and the larger society?); intended and unintended consequences (What are the probable costs and benets associated with the solution, and what could potentially go wrong to complicate the situation?); and likelihood of commitment (Will those who have to implement the decision accept it and work to make it succeed?). All of these dimensions should be considered for each potential alternative.

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Select the best alternative. Again, there are various ideas and opinions regarding how to select the best alternative. A general approach of ranking alternatives in terms of their desirability or appropriateness is often helpful, as is an individualized attempt to use subjective weights and probability estimates of success. This is where the true weakness of this classical or rational decision making model becomes apparent. It assumes that the decision maker has all relevant information, and can therefore always select the optimum alternative. Of course, that is very rarely true in the highly uncertain and constantly changing environment facing todays managers. Implement the chosen alternative. At this stage, managers need to realize that implementation involves much more than simply announcing a decision. Typically, a decision or solution requires a concrete plan for implementation, with particular action steps assigned to specic individuals, including a plan for follow-up and evaluation as specied in the next step. If no one formally accepts the responsibility of ensuring implementation, then the desired solution may never be achieved. Even the best alternative will fail under these circumstances. Evaluate the results. Managers often overlook this nal stage. This is in fact the stage that is most important to the process of organizational learning, discussed below. Especially in cases of nonprogrammed decisions, it is critical to follow up and assess the effectiveness of the solution or decision. Is it being properly implemented? Has it solved the problem? Have any new problems developed as a result of the solution that now need to be addressed? If necessary, the decision making process should be revisited and an alternative solution developed and implemented, or steps should be taken to make sure that the initial solution is indeed properly implemented. If the initial solution was successful, steps should be taken to document and institutionalize it, so that in the future the unstructured problem that it solved may become a structured problem for other managers that can be addressed with this as a programmed decision. In this way, the whole organization benets by learning from the decision making experience of individual managers. Limitations on the Decision Making Process. Before leaving the process of decision making, we should comment on the other basic model of organizational decision making. The classical or rational model is a prescriptive model, describing what ought to happen. The administrative, behavioral, or bounded rationality decision making model is a descriptive model, which describes the realities of the decision making process as it is frequently employed by managers in the real world. The assumptions of the two models are very different. The classical model assumes that the problem is structured, clearly dened, and exists in a certain environment where complete information is available and all alternative solutions and their consequences are known. It is designed to lead to an optimizing decision; the selection of the ideal or optimal solution. The behavioral or administrative model assumes that people operate with bounded rationality, not complete rationality as the classical model suggests.

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This descriptive model assumes that the manager faces an unstructured problem that is not clearly dened, in an uncertain environment, and has incomplete information, (lacking understanding of all available solutions and their consequences). This model recognizes the fact that managers typically act with a variety of cognitive and informational limitations, such that they accept satiscing decisions. What this means is that managers will typically take shortcuts in the decision making process, and implement the rst alternative that seems as if it might yield a satisfactory result. Satiscing thus refers to a process in which managers select the rst alternative that seems to be a minimally acceptable solution to the problem, rather than carefully considering and evaluating all alternatives in order to identify the ideal or optimal solution. It is important for managers to realize the inherent tendency to make a quick satiscing decision under the heavy pressures of the daily workload. This is typically not a signicant issue when facing structured problems. However, it may lead to disastrous results when facing new, signicant, unstructured problems.

Individual versus Group Decision Making


There is an increased emphasis on employee participation in 21st century organizations. One of the major forms of participation is involvement in decision making. There are advantages and disadvantages to individual and group decision making. In general, individual decision making is faster and easier. It takes less time and requires less effort by the manager than does group decision making. However, individual decision making often results in less effective decisions, either because the manager lacked information, experience, or a broader perspective, or because the people affected by the decision were not comfortable with it and did not cooperate to help implement it successfully. For a variety of reasons, organizations have increased the use of group decision making, which also has advantages and disadvantages. The potential advantages of group decision making include: (1) a greater pool of knowledge, information, experience, and perspectives are available, resulting in a better denition of the problem and the generation of a wider variety of alternatives; (2) a better understanding of the decision and the rationale for it is held by more people, who can better communicate it throughout the organization; (3) greater acceptance of the decision and commitment to implementing it successfully is generally found among those who have participated in making it or understand and agree with its rationale; (4) participation typically increases morale and motivation of employees, and provides a strong training opportunity to develop their problem solving skills; (5) research indicates that groups often make better quality decisions than individuals.

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The potential advantages must be balanced against the potential disadvantages of group decision making: (1) the process takes longer, and therefore costs the organization more, potentially wasting time and money; (2) diffusion of responsibility across multiple people may lead the group to make a riskier, more dangerous, or less effective decision; (3) problems with group process may impede effective decision making, such as goal displacement (trying to win an argument or get back at a rival, rather than make the best decision), domination by one or more members, the trading of political favors, or social pressure, including Groupthink (a term describing an overcondent group that strives for harmony and agreement while suppressing dissent, and therefore makes less effective or even highly inappropriate decisions). In general, these problems increase the probability of satiscing rather than optimizing in the groups nal decision. However, specic techniques can reduce the potential for these problems. Such approaches include training in effective styles of group behavior and participation; carefully composing the group in terms of personalities and personal agendas; and the assignment of the devils advocate role to one or more members. The devils advocate method is a technique of critical analysis, in which someone is formally assigned to identify and present all of the reasons against the groups preferred alternative, including potentially negative intended and unintended consequences. This makes it more likely that a balanced evaluation of the preferred alternative will be achieved. Choosing individual versus group decision making. With an understanding of the potential advantages and disadvantages of individual versus group decision making as well as the capabilities, preferences, and biases of his/her staff, the manager is in a better position to make a choice regarding the use of individual or group decision making. In general, when facing a structured problem under conditions of certainty or minimal risk, where programmed decision making is appropriate, use individual decision making unless there is a desire to train employees, or it is likely that they will balk at implementing the decision unless they feel that they have been involved in making it. When facing unstructured problems under conditions of uncertainty or high risk requiring nonprogrammed decisions, it is usually best to use a group decision process, with careful attention paid to the composition of the group and the management of the group decision process.

Organizational Learning and Creativity


As the environment facing businesses becomes more and more turbulent in the 21st century, managers are facing greater uncertainty and risk, including many more unstructured problems requiring nonprogrammed decision making. Some organizations are more effective than others in adapting to these changing circumstances by making more effective decisions and then translating their actions in one situation into an ability to perform better in future similar situations. That is, some organizations are better at transforming nonprogrammed decisions in formats for more effective future decision making. The dimension operating here is called organizational learning.

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Organizational learning refers to a process in which a whole organization learns from experience. A learning organization is constantly changing, adapting to its environment, and improving its effectiveness by institutionalizing the lessons learned by individual managers in response to critical or challenging problems. A learning organization typically places great emphasis on the nal step in the classical decision making model: evaluating the results. This is the single step in the decision making process that contributes the most to organizational learning. A learning organization promotes creativity among its employees and emphasizes the management of knowledge within its boundaries. Knowledge management refers to the development of a formal system to enhance the creation and sharing of critical knowledge and information necessary for effective decision making. Organizations use two types of knowledge: tacit knowledge and explicit knowledge. Tacit knowledge is personal, subjective, intuitively understood, undocumented information. Explicit knowledge is public, objective, rationally understood, documented information. In a learning organization, members share tacit knowledge through networking, coaching, training, and mentoring. However, they go beyond this individual sharing to document best practices and develop formal mechanisms for sharing this now explicit information to promote effective decision making among all relevant employees. The term benchmarking is used to refer to the process of identifying outstanding processes, practices, or standards in other organizations and adapting them to ones own company. Benchmarking is an essential practice in learning organizations. The learning organization ultimately begins with the processes of creativity and innovation. Creativity refers to the production of novel and useful ideas, or solutions to problems. Innovation refers to the implementation of creative ideas in organizations. Creativity begins with individual employees. The three steps in the creative process are preparation, incubation, and evaluation. Preparation involves becoming familiar with an issue or problem and learning as much about it as possible. Incubation entails taking time away from the problem to attend to other matters, while the subconscious mind continues to process the creative challenge. The term illumination is used to refer to the creative insight that often occurs during the incubation stage, resulting in the sudden realization of a creative solution. Finally, evaluation entails a careful study of the new idea or proposed solution, to ascertain that it is realistic, practical, and workable. Once creative ideas have been developed, they need to be sold to upper management in order for the process of innovation to occur.

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Creativity can be promoted at both the individual and group levels. Organizations can enhance individual creativity by providing employees with training in specic methods for enhancing individual creativity such as lateral thinking (changing ones way of perceiving or interpreting information) or cross-fertilization (asking experts from other elds to analyze a problem from their perspective). In addition, organizations can provide workers with the time to study problems in detail, and allow them to experiment, take risks, make mistakes, and learn from those mistakes. Creative ideas and employees need to be recognized and rewarded if the organization wishes to promote the process generally. At the group level, a variety of techniques have been developed to promote creative problem solving. These include brainstorming (a process of suggesting many possible alternativesincluding wild and crazy oneswithout criticism or evaluation); nominal group technique (a process of generating and evaluating alternatives using a structured voting method); synectics (a process of generating alternatives through role playing and fantasizing); the Delphi technique (a process of using a series of condential questionnaires to develop and rene a solution, typically with a group of experts); and as mentioned above, devils advocacy (a method in which an individual or subgroup is assigned the role of a critic). Considerable research has demonstrated the effectiveness of these techniques in promoting creative problem solving.

Conclusion
This chapter has covered a lot of ground, all related to the rst basic management function of planning. We have provided an overview of planning, including the idea of cascading goals or objectives based upon the organizational mission statement. We have described various categories of plans, including strategic, tactical and operational. We have taken a detailed look at the process of strategic management, including strategy formulation and strategy implementation. Finally, we have considered the managerial decision making process that underlies all of these functions. Here we identied a critical difference between structured problems allowing programmed decisions, and unstructured problems requiring nonprogrammed decisions. We outlined both the classical and administrative decision making models, and explored both individual and group decision making. Finally, we outlined the characteristics of learning organizations, and described techniques of promoting both individual and group creativity in problem solving.

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CHAPTER THREE Organizing

Chapter Three Outline Organizing


Introduction Nature of Organizing Organization Design Basic Principles of Organizing Mechanistic versus Organic Systems Traditional Types of Organization Design Functional, Divisional, and Matrix Contemporary Approaches to Organization Design Team Structures, Network Structures, Virtual Organizations Job Design Basic Approaches to Job Design Job simplication, rotation, enlargement, enrichment, work teams Job Characteristics Model Organizational Culture Human Resource Management Legal Environment of HRM Attracting qualied employees involves: Human resource planning Recruitment and selection Developing qualied employees involves: Training and development Performance management Maintaining a qualied workforce involves: Compensation Replacement decisions Labor relations Conclusion

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Introduction
At this point we have dened organizations as groups of people performing interrelated tasks to achieve a common purpose involving the production or distribution of goods or services. We have identied the four functions of management as planning, organizing, leading, and controlling. We have explored the planning function in detail, as the time-based mechanism by which organizations coordinate the efforts of their employees toward the achievement of that common purpose. While the planning function focuses on goals and specic activities or courses of action needed to achieve them, the organizing function makes plans operational by grouping goals and activities into individual jobs, and further grouping individual jobs into organizational units, such as departments or divisions. That is to say, the organizing function puts plans into action by identifying an organizational structure that will facilitate the achievement of organizational goals.

Nature of Organizing
As noted in the rst chapter, organizing refers to identifying specic tasks needed to achieve goals, grouping them into jobs, and allocating authority, responsibility, and resources to allow the tasks to be accomplished. In chapter two we dened strategic management as the process of formulating and implementing strategies to create competitive advantage and achieve the organizations mission and goals. We noted that strategy implementation involves the allocation of resources necessary to achieve strategic goals, as well as the ongoing oversight of the implementation process. This allocation of resources and specication of implementation process is dened through the creation of an organizational structure. An organizational structure is a formal system of tasks and reporting relationships among employees that coordinates their efforts to achieve organizational goals. Its most obvious manifestation is in the form of an organizational chart, which is a visual diagram of the hierarchy of authority and reporting relationships within all or parts of an organization. Any organizational structure always involves a combination of differentiation (the creation of differences between organizational units; such as the division of labor into individual jobs as well as functionally related groupings of jobs) and integration (the use of specic integrating mechanisms to coordinate the efforts and outputs of the different individuals and units in the organization in order to ensure the achievement of overall results). The process of making management decisions

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concerning the assignment of tasks and positions, as well as the arrangement of reporting, communication, workow, and authority relationships, is called organization design. It is important to note that the terms organization design and organization structure are often used interchangeably. Thus, writers may refer to an organizations structure as the organizational design. Several basic principles of organizing, often referred to as bureaucratic principles, form the basis for organization design decisions in the context of environmental factors and organizational strategy. These principles will be discussed in more detail below. You will recall from chapter one that the internal environment of an organization consists of the conditions and forces that exist within the boundaries of the organization, while the external environment refers to the set of conditions and forces that exist outside the organization and have the potential to affect it. The organizing function of management is an attempt to structure and control aspects of the internal environment of the organization in order to maximize t with the specics of the external environment impacting the organization. Put another way, there is a critical strategic dimension to organizational design decisions. Depending upon how well the structure ts the competitive environment, the organization will have a greater or lesser degree of competitive advantage. Thus, the organization design or structure must t with the organizations strategy and environment, including the technology and human resource systems employed. Structural issues related to organizing are addressed at the individual, group and organizational levels in all rms. At the individual level, the process of grouping goals and activities into jobs is called job design. At the group level, individual jobs are allocated to larger organizational units that will allow for the coordination and control of activities needed to achieve the organizations mission in an efcient and effective manner. As noted above, this latter process is known as organization design. The interaction of individual employees and the groups they work in constitute the third level at which structural issues are addressed in organizations: the organizational level. Since organizations are made up of people, a human element becomes overlaid upon any organization design and inuences the performance of both individual employees and the organization as a whole. This element is referred to as organizational culture (the set of values, beliefs, attitudes and shared expectations that inuence the way in which individuals and groups work together in an organization), which was discussed in Chapter One. Efforts to manage employee behavior in the context of the designed jobs and organizational structure as well as the emergent organizational culture are carried out through the stafng processes of human resource management, which are focused on attracting, developing, and maintaining an effective workforce. Organizational culture and human resource management operate as integrating mechanisms in organizations. Each of these topics will be discussed in turn in this chapter.

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Organization Design
As noted above, there is a quality dimension to organization design decisions. The structure of an organization may t its competitive environment to a greater or lesser degree. Therefore, one of the most critical types of management decisions at the executive level concerns how to structure the organization to meet ongoing or emerging competitive challenges. In order to make effective organization design decisions, top managers need to understand three categories of concepts related to organizational structure. First, they must grasp some basic principles of organizing. These include the concepts of division of labor, chain of command, span of control, degree of centralization, departmentalization, and coordination. Since specic implementation decisions regarding these organizing principles have a signicant effect on the organizations overall rigidity or exibility, managers need to understand a second concept known as mechanistic versus organic organizational structure. This dimension becomes critical in relation to the degree of environmental change or uncertainty faced by the organization. Finally, managers should understand the basic approaches to organizational structure that are widely used today, in order to be able to select the designs that will be most effective in their organizational environments.

Basic Principles of Organizing


The concept of division of labor states that work is best accomplished in an organization through task specialization (which refers to the degree to which work tasks are broken down into smaller and smaller component parts). Using the concept of cascading goals or objectives that was described in the previous chapter, this means that the complexity of the overall work of the organization is broken down into smaller, more focused components, each of which can be completed more efciently by individual contributors. This separation of work into such components reects differentiation, or the promotion of differences between employees tasks, as mentioned above. Employees would typically perform specialized jobs and report to a single boss in a given functional area, such as marketing, accounting, or production. Organizations may differ widely in the degree of specialization that they build into their jobs, as will be discussed further in the section on job design. Such specialization typically promotes efciency, especially in highly predictable environments. Reporting to ones boss reects the concept of chain of command, also referred to as hierarchy of authority. The basic idea here is that a clear line of authority must exist from the top to the bottom of the organization, with each employee knowing who he or she reports to, and who reports to him or her. Historically speaking, organizations have also emphasized the concept of unity of command, which is the idea that every employee must report to one and only one boss. In this way, different superiors do not give employees conicting directives. It is this hierarchy of authority that is emphasized in an organizational chart. During the latter part of the twentieth century North

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American organizations have moved away from an authoritarian style of management to a much more participative style. As such, many writers have come to prefer the term hierarchy of authority over the more military style term, chain of command. The terms may be used interchangeably. Similarly, in recent years there has been less emphasis on unity of command, especially in matrix structures, which will be discussed below. Several related concepts deserve elaboration here. The term authority refers to a managers right to make decisions, take actions, and give orders, which must be carried out by subordinates. Responsibility refers to the obligation to perform assigned tasks and achieve assigned objectives. A critical part of the planning and organizing functions entails clearly specifying which managers are responsible for achieving specic objectives. Accountability refers to the requirement that an individual justify results to a higher management level, and implies that a specic individual may be rewarded if assigned results are achieved, or correspondingly may suffer negative consequences if they are not. If a goal is not achieved, a specic manager must be able to explain why, and take responsibility for the failure to perform. This concept is particularly important in relation to delegation. Delegation refers to a managers assignment of authority and responsibility to a subordinate for achieving specic objectives. For example, a manager may delegate tasks to a subordinate (i.e., assign the work to the subordinate), but if the work is not performed properly, the manager may suffer negative consequences in addition to the subordinate. The manager is ultimately accountable for achieving results in his or her unit. Organizations typically differentiate between line and staff authority. Line authority reects the typical concept of chain of command, and refers to a managers right to hire, re, reward, and punish subordinates. In its simplest terms, line authority means that a manager has the right to make decisions and give orders down the chain of command. Line managers are those who are direct contributors to the achievement of the organizations strategic goals. For example, in a manufacturing organization, production, shipping, and sales managers would be considered line managers. Staff authority on the other hand reects more of an advisory function based upon specialized expertise. Staff managers contribute indirectly to the achievement of the organizations goals by providing recommendations, advice, or counsel to line managers or others in the organization. In a manufacturing organization, accounting managers might provide recommendations on cost control procedures while human resource managers might provide training on supervisory techniques to reduce turnover and grievances. In most organizations, production/ operations, marketing, and sometimes nance are considered to be line departments, while public relations, information technology, and human resources are typically considered to be staff departments. In many organizations the distinction between line and staff is not clear, but this is a widely recognized concept that any student of management should be aware of.

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The term span of control (also referred to as span of management) refers to how many employees report to each manager, and ultimately reects the number of levels of management in the organization. In an organization with a small span of control, (such as fewer than eight subordinates reporting to a manager), the manager can closely monitor and supervise the work of the employees, but the organization is likely to have many more managers and more levels of management, resulting in a tall organizational structure. In contrast, a at organizational structure has a larger span of control, with more employees reporting to each manager (often twelve or more), and fewer levels of management. In the 21st century, organizations are typically moving to atter rather than taller structures. The degree of centralization refers to the level in the management hierarchy at which important decisions are typically made. Centralization refers to a situation in which top management makes the important decisions, while decentralization refers to a situation in which decision making authority is moved to lower levels of the organization, (though it should be noted that this is a continuous and not a bipolar dimension). In a decentralized organization, middle and rst line managers have considerably more decision making authority. There is a general trend toward decentralization in todays organizations, though there are advantages and disadvantages to both approaches in different environments. Decentralization is often more effective in coping with rapid change and uncertainty, but centralization is often more effective in times of crisis or serious risk of organizational failure. The concept of departmentalization refers to the approach used for grouping jobs into units within the larger organization. The three most widely used approaches are functional, divisional, and matrix. These traditional approaches, which emphasize a vertical structure, have been in use for many years and represent some of the most popular types of organizational design. With the dramatic increase in environmental complexity facing organizations in the global business environment of the 21st century, many organizations have been developing new, contemporary approaches in an attempt to gain competitive advantage. We will discuss the concept of horizontal structure with its emphasis on exibility, participation, and teamwork that is replacing the more traditional emphasis on bureaucratic command and control structures, and we will discuss the three contemporary design approaches of team, network, and virtual structures. For now, we will focus on the concept of coordination, also referred to as integration. The application of the principles of division of labor and job specialization result in groupings of jobs and employees whose goals, activities, and priorities are often very different. For example, marketing often pushes to sell more products more quickly, but production may not be able to keep up with orders, creating conict between the two departments. These inherent differences reect differentiation. In order

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to maintain overall organizational effectiveness, coordinating or integrating mechanisms are required to make sure that all departments are always working together effectively to achieve strategic and operational goals. At the lowest level, rules, regulations, and procedures (discussed in the planning section) can serve as integrating mechanisms. Additional coordinating tools include (1) direct supervision or leadership, where a common superior is used to integrate the efforts of subordinate individuals and groups; (2) meetings, where representatives from interdependent units meet to coordinate plans and objectives; (3) integrating positions, such as the liaison role (where an individual manager is assigned to facilitate communication between two or more departments) or the integrating role, (where a specic manager is assigned to coordinate the work of several different departments, but that manager is not a member of any of the individual departments, such as the position of project manager, product manager, or brand manager); (4) integrating teams, which may involve the use of problem solving teams (also called parallel teams, which include representatives from different departments to deal with ongoing challenges or problems) or task forces (a temporary group representing several departments used to study problems and make recommendations); (5) organizational culture, where a system of shared norms, expectations, and values aligns the efforts of employees in consistent ways; and nally, (6) organization wide systems, including management by objectives and organization wide reward systems such as prot sharing. Different organizational structures use varying arrangements of integrating mechanisms, but all organizations must have some form of integrating mechanisms built in to maintain the unied focus across all units needed to achieve the organizations mission.

Mechanistic versus Organic Systems


In any organization, the structure can place greater or lesser emphasis on each of these principles of organizing. For many years, management theorists have recognized two extreme types of organizational systems reecting high or low emphasis on these and other classical bureaucratic principles of organizing. A mechanistic (or bureaucratic) system emphasizes top down authority, centralized decision making, many highly formalized rules, regulations, and procedures, narrow spans of control with taller structures, and highly specialized jobs, with very formal and impersonal coordinating mechanisms. Such a structure is sometimes referred to as a vertical structure. At the other extreme, an organic (or adaptive) system emphasizes participative management, decentralized decision making, few rules, regulations, and prespecied procedures, wider spans of control with atter structures, more exible job descriptions and empowerment of employees, and more informal and personal coordinating mechanisms. Mechanistic organizations tend to be rigid and bureaucratic in design and function, while organic organizations tend to be much more exible in structure and function, and therefore more adaptable to change. It is important to keep in mind that this dimension represents a continuum of possibilities: organizations are not either mechanistic or organic, but rather exist somewhere on the continuum between the two extremes depending upon their relative emphasis on the classical bureaucratic principles of organizing.

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The key to effective organizational design is selecting the appropriate emphasis on the basic principles of organizing in order to maximize t with the demands of the organizations environment. Mechanistic organizations tend to be more effective in relatively stable and predictable environments, where specialized procedures can be used over and over again. Many fast food chains, government agencies, and small businesses can operate quite effectively in this way. Organic organizations tend to be more effective in changing and uncertain environments, where innovation and creativity are required to adapt quickly to complex, uid sets of circumstances. These structures are widely used in high technology, entertainment, and nancial services companies. The differential appropriateness of these organizational forms illustrates the fact that there is no single, ideal organization design. Rather, each organizational structure must be uniquely crafted to match the demands of its environment in the context of its strategy, technology, and human resources.

Traditional Types of Organization Design


As has been repeatedly emphasized, effective organization designs are a good t for the environment of the particular organization. A detailed discussion of the environmental factors involved in making such design decisions is beyond the scope of this book. For our purposes, simply illustrating the most popular types of organization design from both the historical and contemporary perspectives will provide the basic understanding needed for a grasp of general management principles. As noted above, the concept of departmentalization refers to the mechanism for grouping jobs into units within the larger organization. The organizing principle of division of labor is used to allow employees to specialize in order to maximize efciency; however, the efforts of these specialized jobs in meeting operational objectives need to be coordinated and kept on track to achieve the organizations overall strategic objectives. Ultimately, individual jobs must be grouped into formal work units that are linked together in a systematic and integrated manner. From the historical perspective, the three most widely used approaches to departmentalization are functional, divisional, and matrix. Functional structures are the simplest form of organizational design. In a functional organization, employees with similar skills who perform related tasks are grouped together into formal work units. Such a structure would typically have the president at the top of the organization chart, followed by vice-presidents for the various functional departments needed to perform the work of the organization (such as production, marketing, nance, and human resources). Functional structures work best in small to medium sized organizations facing stable, predictable environments. New businesses will often start with one or a few product lines targeted at a clearly dened customer base, and will use a functional structure. This structure promotes specialized expertise among employees and is highly efcient. However, this specialization can create communication

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problems and goal conict, increasing requirements for coordination and integration, as mentioned above. Further, as organizations grow and develop greater variety in their product lines and/or greater breadth in the types of customers served at regional and national levels, the functional structure becomes less effective. Thus, growing organizations will typically reorganize to follow a divisional structure. Divisional structures provide an intermediate level of complexity capable of handling greater variety in products and/or customers. Such structures create separate business units, often containing the necessary functional departments needed to operate effectively, but focused on particular products, processes, geographic areas, or customers. The common forms of divisional structure are: product (organized around the type of product or service provided); geographic (organized around the region of the country or world that they serve); market (organized around the types of customers servedsometimes called a customer structure); and process (organized around jobs and activities that are part of the same work process, such as purchasing, order fulllment, and systems support for an Internet retailer). Divisional structures typically provide greater exibility in responding to change, and better coordination of functional departments. However, they can increase costs through the duplication of resources and lead to unhealthy competition between divisions. They are common in large and multinational organizations. Matrix structures (or matrix organizations) are a combination of the functional and divisional structures which focus on project teams where team members report to two bosses: a functional manager and a project manager. In such organizations, workers belong to two formal units simultaneously: a functional unit (such as engineering, sales, or production) and a project, program, or product team (such as ethanol vehicles, electric vehicles, or hybrid vehicles). These are very complex and difcult to manage structures, with many problems associated with having workers report to two bosses. However, they can function effectively when the employees involved have strong interpersonal skills and are able to address and resolve the conicts inherent in the dual reporting relationships. The major advantages of matrix organizations are exibility to meet changing demands along with improved decision quality and customer service as both functional and project demands are better balanced. Matrix structures have been used in a wide variety of aerospace, high technology, global and other types of organizations. They are best used in complex, rapidly changing environments that require high levels of organizational exibility and adaptability. They are typically not as widely used as divisional structures, due to their management complexity.

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Contemporary Approaches to Organization Design


Beyond the functional, divisional and matrix structures that have been popular for years, organizations are experimenting with a variety of structures in an attempt to gain competitive advantage in the rapidly changing global business environment. In fact, it is important to point out here that many real-life organizational designs are actually hybrid structures, which combine several types of departmentalization. This is especially true in large, complex organizations. Some units may be organized functionally, others divisionally, and a few may utilize matrix structures, others may use team structures, all within one company. Thus, many real-life organization structures do not t neatly within the categories identied by management theorists. Rapidly increasing global economic competition has forced changes in organizational structure. Business success increasingly requires continuous improvements in quality and productivity, faster introduction of new and improved products, greater focus on customer needs and satisfaction, constant updating to take advantage of the latest technology, and ongoing awareness of new and emerging trends and requirements for global trade. Increasingly, the bureaucratic and mechanistic organizational structures that were successful in the mid-twentieth century are no longer effective. There is a movement away from these so-called vertical command and control structures, to what are becoming known as horizontal structures. Horizontal organizational structures emphasize the importance of participation and empowerment over the traditional hierarchy of authority, as they attempt to use both technology and the capabilities of a highly trained and interpersonally skilled workforce to foster exibility and innovation in the face of changing environmental demands. As they attempt to gain competitive advantage, cutting edge companies have begun using several additional types of organizational structure. These include team structures, network structures, and virtual organizations. Team structures are increasingly replacing hierarchical, top-down, authoritarian approaches to management. Companies are nding that teams can serve as the basic building blocks of organizational structure in many work units, with dramatic improvements in worker motivation and satisfaction as well as impressive bottom-line results in terms of increased productivity, quality, and efciency. Team structures use both permanent and temporary cross-functional and project teams to manage daily operations as well as solve problems or complete specic projects. Cross-functional teams are composed of members drawn from different functional departments (such as engineering, production, and marketing), designed to integrate various areas of expertise in resolving problems or managing daily activities. Project teams are temporary groupings of individuals with needed skills and expertise designed to solve a problem or seize an opportunity.

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Network structures take advantage of the latest advances in information technology while building strategic alliances with other organizations in order to achieve common goals with a highly exible structure. Sometimes referred to as boundaryless organizations, this structure uses Internet, intranet, teleconferencing, and other forms of technology to overcome traditional barriers of time and space in order to allow people in different locations and even different organizations to collaborate to achieve common goals. As noted in the rst chapter, global organizations are increasingly developing strategic alliances in which they work together as partners to pursue an area of mutual interest. These include outsourcing alliances (in which certain services, such as information technology, customer service, or human resources, are eliminated in house and taken over by the outside organization); supplier alliances (in which preferred relationships with suppliers are used to guarantee sales to the supplier and high quality supplies to the purchaser); and distribution alliances (in which organizations partner to more effectively sell and distribute products). A network structure would typically consist of a core rm responsible for certain functions (such as product design and development, located in the U.S. or some other country), with other functions performed by different organizations through strategic alliances, such as manufacturing done by Company A in China, marketing done by Company B in France, and accounting done by Company C in India. Such structures can promote collaboration with customers, suppliers, and even competitors. They allow for maximum cost competitiveness and efciency by streamlining operations and stafng, having different tasks done in countries where they can be performed the least expensively. However, there can be problems of quality control and even loss of valued business secrets through outsourcing. Since these procedures are still being developed, the nal word is not yet in on their advantages and disadvantages. Finally, a virtual organization is a special form of the network organization. In a virtual organization, there are typically few permanent employees and little formal organizational structure. Much of the organizations business is conducted over the Internet, with a constantly shifting array of external alliances that are used as needed depending upon the demands placed upon the organization in any given place and time. The Rolling Stones world tours are managed through a virtual organization, where ticket sales, development of venues, and the setup, take down, and transportation of equipment is handled by different organizations at different points in time in different parts of the world. Finally, it should be carefully noted that these concepts of network, boundaryless, and virtual organizations are emerging approaches that are still developing in worldwide management practice. Therefore, the terms may be dened and used differently in different contexts and organizations. Do not be surprised if you nd these concepts applied somewhat differently than they have been presented here. They have not yet entered the historically accepted lexicon of management theory.

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Job Design
Ultimately, the work of the organization must be broken down into separate tasks that can be performed by individual employees. Job design is the process of grouping goals and activities into sets of tasks that can be performed as jobs by individual workers. One of the things that became clear to managers over time was that the nature of those sets of tasks could have a major impact on both worker motivation and productivity, and thereby, on the efciency and effectiveness of the organization as a whole. As mentioned above, one of the most basic principles of organizing is division of labor, which uses task specialization to break the overall mission of the organization down into separate tasks and groups of tasks that can be accomplished by individuals and groups, in a coordinated and efcient manner such that the overall organizational mission is accomplished. Early work in the late 19th and early 20th centuries in the area of scientic management focused on efciency as the basis for effective organization design, and identied the approach known as job specialization as the most appropriate way to design individual jobs. However, motivational problems associated with job specialization led to various efforts to make work more interesting and challenging to workers, including job rotation, job enlargement, and job enrichment. Further advances in job design occurred with the realization that job enrichment can be applied at both the individual and the team levels. In fact, a complex model for job design, known as the job characteristics model, was developed to identify more effective ways to design and redesign individual jobs.

Basic Approaches to Job Design


In an attempt to maximize efciency, job simplication (also referred to as job specialization) essentially takes task specialization and the division of labor to the extremecreating jobs that consist of very few simple tasks that can be repeated easily and without thought in a very brief span of time. The classic example of this is automobile assembly line work, in which one workers job might entail mounting the frame for the left taillight on the vehicle body as it moves past his workstation. This task might be repeated once every minute or so for a full eight hour day. As you might imagine, many workers nd simplied jobs to be very boring and monotonous, often resulting in high turnover and absenteeism. In an attempt to maintain the efciency of job simplication, but boost the motivational value for the individual worker, job rotation was introduced. In job rotation, individual employees move from one simplied job to another, and thus have the opportunity to perform a wider array of tasks, without increasing the complexity of the individual jobs. For example, the assembly line worker might mount taillight frames for one hour, then mount headlight frames for the next hour, then insert taillight bulbs for the next hour, and so on.

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While job rotation was somewhat helpful in dealing with motivational issues in workers, it was clear that a better solution was needed. Another approach was job enlargement. In this case, several simplied jobs were combined into one job, providing the worker with a larger number of different tasks to perform. For example, one worker might install the taillight frame, insert the bulb, and install the taillight lens all as part of one job. Each of the previous approaches keeps jobs simple and avoids any signicant autonomy or decision making authority for the individual worker. All such authority is retained by management in these less complex approaches to job design. Job enrichment differs, in that it increases the level of responsibility that the worker has for achieving results in the job. This provision of decision making authority to the individual worker is referred to as vertical loading (i.e., adding responsibility previously reserved for management) as opposed to the horizontal loading (simply adding more tasks at the same level of complexity) that characterizes job rotation and job enlargement. With job enrichment, workers are provided with the motivating factors of authority, responsibility, and control needed to make relevant decisions, in order to make the work more meaningful and challenging. Enriched jobs would not be done on an assembly line. Rather, an individual worker would be given the responsibility of organizing, scheduling, and controlling the work processes for a complete unit of work. For example, a worker assembling engine components may be given a quota of completed units to do in a shift, but allowed to determine her own work pace and schedule, and given the responsibility to check her own work for quality control purposes. The provision of responsibility and authority to workers that characterizes job enrichment has been extended to work teams, in what are called autonomous work groups or self-managed teams. As with job enrichment, the workers are given the authority, responsibility, and control needed to make relevant decisions about their work. However, the whole team shares that responsibility. Thus, the team would be assigned a goal, and the members would work together to plan, organize, and control the work process to ensure successful achievement of the assigned performance outcomes. This approach not only makes the work more meaningful and challenging, but it also promotes synergy among the team members. Synergy refers to a situation in which the output of the team is greater than the output of the individual workers, due to shared responsibility, cooperation, collaboration, and shared commitment to maintaining maximal performance success. Increasingly, automobile assembly plants are organized around self-managed teams that complete whole sub-assemblies for the vehicles, rather than around traditional assembly lines. We will discuss this in more detail in the next chapter.

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Job Characteristics Model


The Job Characteristics Model provides a conceptual framework for managers to use in designing or enriching jobs. The model is based upon three components: core job dimensions, critical psychological states, and employee growth need strength. The ve core job dimensions are (1) skill variety: the degree to which the job involves different tasks and requires multiple skills; (2) task identity: the degree to which the job involves the completion of a whole, identiable piece of work; (3) task signicance: the degree to which the task is seen as important and having an impact on others; (4) autonomy: the degree to which the worker has freedom and discretion to schedule, organize, and control the work; and (5) feedback: the degree to which actual job performance provides information to the worker about the quality of his or her performance. The model states that the workers motivation, satisfaction, performance, as well as absenteeism and turnover are all inuenced by three critical psychological states. These three critical states are (1) experienced meaningfulness of the work; (2) experienced responsibility for work outcomes; and (3) knowledge of the actual results of the work activities. The ve core job dimensions affect these three critical psychological states, such that jobs higher on the core dimensions are expected to be more satisfying and motivating. However, not all employees will respond positively to jobs that are high on the ve core job dimensions. Employee growth need strength moderates this relationship. Employee growth need strength refers to the extent to which employees have high needs for personal growth, development, and achievement. According to the model, employees with high growth needs will respond best to enriched jobs, while those with lower growth needs may be less motivated. The model includes specic recommendations for ways to increase the core job dimensions, and thereby the motivating potential of the job. These include the combination of tasks, the formation of natural work units, the establishment of client relationships, vertical loading of jobs, and the expansion of feedback opportunities. All of these approaches to job designjob simplication, job rotation, job enlargement, and job enrichment (at the individual and team levels)are regularly used in contemporary organizations. As demonstrated by the job characteristics model, different approaches to job design will be differentially effective with different types of employees. Thus, in the same way that managers must match the organization design to the characteristics of the environment to maximize organizational performance, managers must match the design of jobs to the characteristics of the employees to maximize individual performance. This match is critically important, since job design can strongly inuence worker motivation, satisfaction, productivity, absenteeism, and turnover. Within the organization, recruiting, retaining, and developing employees with the characteristics needed to succeed in the organizations work systems is the province of human resource management. Before we discuss human resources, we will touch on a more general inuence on worker behavior in organizations: organizational culture.

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Organizational Culture
In Chapter One we differentiated between the internal and external environments of the organization, and we described the concept of organizational culture in some detail. That discussion will not be repeated here. However, we will take a moment to clarify the relationship of organizational culture to the organizing function. In this chapter we have described structure as one of the essential outcomes of the organizing function of management. The structure of an organization includes both formal and informal components. Job design, organization design, and human resource management focus on formal components: aspects of the organization that are clearly dened, typically in written form, and consciously articulated to all organization members through job descriptions, policy and procedure manuals, performance appraisal forms, and many other devices. Organizational culture (the set of shared values, beliefs, assumptions, and expectations that inuence employee work behavior) is often more of an informal system, which is not always clearly articulated and often inuences employee behavior in a subconscious way. As a major component of the internal environment of the organization, organizational culture functions as an integrating or coordinating mechanism from the structural perspective, (which will be referred to as clan control, in the Chapter Five discussion of control systems). Organizational culture, or the system of values, beliefs, attitudes, assumptions and shared expectations held in common by members of an organization, dene the way things are done in any given organization. Organizational culture inuences how employees think, feel, perceive and act at work. Workers want to t in and be accepted by their colleagues. Those who internalize organizational culture and behave as expected are treated well and accepted as valued members of the team, while those whose behavior is deviant will typically be ostracized, disliked, mistrusted, and avoided. In essence, the shared values, assumptions, and expectations of organizational culture create a shared identity and commitment to a common purpose (i.e., the organizational mission) among employees. In this way, culture can act as a very effective internal control system promoting the self-management of employee behavior. Culture can thus substitute for formal integrating systems such as rules, procedures, policies, or direct supervision. It should be noted that not all cultures are created equal, however. Organizational cultures vary in strength from strong to weak. In strong cultures, the core values are more deeply held and widely shared among employees, thereby exerting a more pronounced effect on their overall behavior. Organizations with strong cultures typically pay more attention to indoctrinating new hires into the company culture through the process of organizational socialization, as described in the rst chapter. Recall that organizational socialization refers to the process by which new members of an organization learn the values, norms, and expected ways of working necessary to perform their jobs effectively in that organization. Organizational culture is learned not only through formal orientation training for new employees, but more informally by observing things like company

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heroes (such as Ray Kroc, the founder of McDonalds), language and stories (including slogans such as McDonalds Q, S, C, V meaning Quality, Service, Cleanliness, and Value), or rites and ceremonies (such as Mary Kay Cosmetics annual awards ceremony for sales representatives, where success is rewarded with jewelry, furs, and pink Cadillacs in front of a cheering audience with the formal, glamorous atmosphere of a wild pageant). All of these will be more pronounced in organizations with strong cultures. To the extent that a strong culture is a good t for the organizations environment and strategy, it can be a major contributor to competitive advantage. One of the ways in which managers maintain a strong, effective culture is by recruiting new employees who t the culture, developing them to maximize t, and eliminating employees who do not t. This is handled informally through dimensions like supervisory coaching and team pressure, and formally through mechanisms such as performance appraisal, promotions, and disciplinary action. These latter mechanisms bring us to the topic of human resource management.

Human Resource Management


In the highly competitive global business environment, companies are increasingly focusing on the concept of human capital in addition to the traditional emphasis on nancial capital as a signicant foundation for organizational success. The term human capital refers to the economic value of the skills, experience, and capabilities of the organizations workforce. The management eld of human resource management has become much more important in the past several decades as companies attempt to adapt to changing business conditions by effectively managing not only their money, but their people as well. Human resource management refers to the management function involved with attracting, developing, and maintaining a qualied workforce for the organization. The eld of human resource management includes several different stafng functions, as follows: (1) attracting qualied employees involves human resource planning as well as recruitment and selection; (2) developing employees involves training and development as well as performance management; and (3) maintaining an effective workforce involves compensation, replacement decisions, as well as labor relations. Most of the stafng activities of organizations involve signicant legal regulation, which varies depending upon the locality involved. We will begin our discussion by touching upon these legal issues.

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Legal Environment of HRM


Within the United States, there is a signicant amount of legal regulation of the stafng function. This regulation may differ at the federal and state levels, and it almost always differs signicantly at the global level. Most US organizations try to develop policies and practices that will comply with the strictest federal and state standards so that they can use the same human resource practices nationwide. A complete understanding of the principles of general management requires an acquaintance with several concepts from this legal arena. There are a variety of laws prohibiting discrimination in employment. Discrimination occurs when employment decisions are made based upon personal characteristics that are unrelated to job performance. Widespread employment discrimination in the United States during and prior to the mid-twentieth century led to the passage of a variety of laws, the best known of which is Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based upon race, color, religion, sex, or national origin. A variety of other federal laws and executive orders impact human resource practices in the area of equal employment opportunity, compensation and benets, labor relations, and occupational safety and health. Equal employment opportunity (EEO) refers to the right to employment without regard to race, color, religion, national origin, gender, age, or disability. The goal is to have employment decisions based only upon an individuals ability to perform a job, and actual performance in the job, and not on irrelevant personal factors. Thus, Federal law typically requires that decisions regarding hiring, promotion, termination, compensation, and selection for training be made without regard to a persons race, sex, religion, age, color, national origin, or disability. These legal restrictions have led to the concept of a protected class, which refers to specic categories of people who suffered widespread employment discrimination in the past, and are therefore accorded special legal protection now. Protected categories of employees now include Blacks, Asians, Hispanics, Native Americans, women, people with physical and mental disabilities, and people over age 40. Afrmative action refers to legal requirements to actively recruit and give preference in employment to the protected classes of women and minority group members, in order to make up for the effects of past discrimination. Several federal and state laws require afrmative action under certain circumstances, (such as performing work under government contracts, or as part of the settlement of a discrimination suit), and are often the subject of controversy. A variety of other laws affect compensation, setting minimum wages and requiring overtime pay under certain circumstances, requiring equal pay for men and women doing the same work, and setting standards for pension plans. In the area of labor relations, the right of employees to unionize is protected, with strict regulation and oversight of both union and management behavior in this regard. Finally, the 1970 Occupational Safety and Health Act (OSHA) requires employers to maintain safe working conditions for employees, and establishes standards that employers must meet.

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Violations of any of these acts can result in stiff nes as well as injunctions or court decisions demanding an end to offending practices and the payment of back wages or other nancial awards to employees. Legal regulation of human resource management is always developing through new legislation as well as case law (the results of court decisions, which set precedents for deciding further cases). Such developments include prohibitions against sexual harassment, and erosion of the employment at will doctrine. Sexual harassment is a concept of discrimination that evolved out of case law. It is now recognized as a violation of the Civil Rights Act, and a form of sex discrimination (though it was not explicitly written into the law itself). Sexual harassment occurs when unwelcome sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature are involved in creating a hostile work environment, or are required for an employee to keep his or her job. It is the source of many discrimination complaints, and requires careful attention by organizations to avoid liability. Employment at will is a longstanding legal doctrine that holds that either the employer or employee can end the employment relationship at any time for any reason, unless there is a specic employment contract between them. However, most states have developed laws allowing employees to sue their previous employer for wrongful discharge, if they feel they have been unfairly terminated. Being red for whistle blowing would be an example. Wrongful discharge is a relatively new legal doctrine that applies under certain circumstances, and requires employers to have a job or performance related reason for terminating an employee. Thus, the longstanding doctrine of employment at will is being eroded through case law as well as new legislation. One of the most important requirements for success in the eld of human resource management is remaining current with developments in employment law. The practicing manager also needs to understand many of these concepts, since his or her actions can lead to legal problems for the company, as well as direct liability by the manager personally in some cases.

Attracting Qualified Employees


Attracting qualied employees is a two step process, beginning with human resource planning to identify employment needs, followed by recruitment and selection to bring in qualied applicants and hire the most appropriate ones as new employees. Human resource planning involves forecasting current and future needs for employees with specic skills and abilities to meet the stafng requirements of the organization as it implements its strategic plan. This will typically include an assessment of the supply and demand for workers with specic skills both within the organization and in the external environment. Human resource planning is ultimately based upon job analysis. Job analysis is a systematic procedure used to collect information about the work activities and context of jobs, as well as the skills, knowledge, and abilities needed to perform them successfully. A job analysis will typically result in a job

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description and a job specication. A job description denes the basic duties, activities, and responsibilities of a given job, while a job specication denes the qualications needed by an employee to successfully perform a job. Recruitment refers to the activities used by the organization to attract a pool of qualied job applicants. Recruiting may be done internally or externally. Internal recruitment refers to seeking applicants from within the organization, and is associated with a policy of promotion from within which tends to impact positively on employee morale. External recruitment refers to the practice of seeking new employees from outside the organization through a variety of external sources, such as advertising, public and private employment agencies, walk-ins, employee referrals, job fairs, and other organizations (such as colleges, technical schools, or professional associations). External recruiting often brings employees with new ideas and fresh perspectives who can invigorate the organization and boost innovation. The effectiveness of recruitment can be increased with the use of a realistic job preview. The realistic job preview provides blunt, honest information about both the positive and the negative aspects of the job and the company to potential applicants. In this way, applicants can personally determine whether or not they might want to perform this job and work for this organization, before actually being hired. In this way, applicants can self-select out of the hiring pool if they dont like what they hear. Selection refers to the process of choosing one applicant, who will be most likely to succeed in the position, from the pool of prospective employees. There are very strict legal requirements on recruiting and selection of employees, since it is these processes that have been historically used to discriminate against women and minorities in the U.S. As part of the selection process, employers assess applicants qualications to determine which applicant would be the best t for the position. Procedures used include the evaluation of resumes, application forms, employment tests, references and background checks, and employment interviews. Equal employment opportunity requirements demand that any procedure used to make employment decisions (including hiring, ring, promotion, dismissal, and selection for training) must be job related, based upon reliable and valid criteria. Reliability means that a selection instrument provides consistent results with repeated measurement. Validity means that the selection device truly predicts likely differences in future job performance. Reliability, validity, and job relatedness of selection devices must be demonstrated by employers if challenged, in order to demonstrate that irrelevant or discriminatory criteria were not used to make the selection decision. Companies have had to become extremely careful and systematic in their hiring processes over the past several decades to comply with these requirements.

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Developing Qualified Employees


Once applicants are hired who have the basic skills and potential to become effective employees, that potential must be realized. The HR functions of training and development and performance management come into play here. Training and development refers to an array of systems and procedures used to help employees develop the skills and behaviors needed to perform their jobs well. Depending upon the specic training objective (such as imparting information, developing analytical or problem solving skills, or developing specic job behaviors) different training methods might be employed. Orientation training involves a systematic program of organizational socialization, in which newcomers are familiarized with their jobs and coworkers, as well as organizational culture, policies, standards, and goals. The most frequent type of training used is on-the-job training, which is done at the actual work site using the materials and equipment that the employee uses to perform the job. Typical techniques include job instructional training (where an experienced employee shows the newcomer how to do the job while he or she performs it), job rotation, projects, and coaching or mentoring. Off-the-job training takes place away from the actual work site, often in a classroom or specially designed training facility (such as a mock up of a nuclear reactor control room, used to train reactor technicians). Widely used training methods in this category include videos, lectures, readings, case studies, group discussions, in basket exercises, management games, role playing, simulations, and computer-based learning. A performance management system sets standards for employee performance and assesses that performance in an objective, properly documented manner, in order to facilitate performance based employment decisions (such as salary increases, promotion, transfers, training, demotion, discipline, or dismissal). At the heart of the performance management system is the performance appraisal process. Performance appraisal refers to the formal evaluation of job performance, including the provision of feedback to the job incumbent. Performance appraisal serves two purposes in organizations: evaluative and developmental. The evaluative function of performance appraisal focuses on the past to measure actual performance against goals and standards in order to make administrative decisions such as compensation, promotion or dismissal. The developmental function of performance appraisal focuses on the future to make plans for performance improvement, such as training, job rotation, or mentoring. The manager acts in a judgmental role when performing the evaluative function, but in a counseling role when performing the developmental function. As was the case for selection criteria, there are strict legal requirements for reliability and validity of performance appraisal instruments, when they are used as the basis for employment decisions. Managers must keep adequate written records to substantiate the job related, non-discriminatory nature of their evaluations and actions based upon performance appraisals. One major role of the human resource department is ensuring that managers conduct appraisals properly and maintain adequate records as required by law.

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A variety of performance appraisal methods are currently in use. These include the graphic rating scale (using a numerical rating for each item on a checklist of traits or characteristics related to performance); the behaviorally anchored rating scale (which uses concrete descriptions of specic, job-related behavior to rate different performance levels); the ranking method (in which employees are compared to each other, rather than an absolute standard); the critical incident method (in which a record of particularly effective or ineffective work behaviors is developed over time); outcome based methods (in which the actual results achieved form the basis for the appraisal, such as sales volume or number of errors); and nally, the 360 appraisal (which includes evaluations from not only the employees superior, but also from subordinates, peers, and internal or external customers of that individuals work). From the legal standpoint, appraisal systems that are based upon objective outcomes or veriable behaviors will be easier to defend in court, and are clearly preferable over subjective appraisals that focus on personality traits or managers perceptions of effectiveness.

Maintaining a Qualified Workforce


Once qualied employees have been recruited, hired, and developed to be productive contributors, they need to be retained in the organization unless and until their performance deteriorates or the company needs to reduce the size of its workforce. Thus, maintaining an effective workforce involves compensation, replacement decisions, as well as labor relations. Compensation includes the monetary and nonmonetary rewards that employers provide to employees in exchange for their work. Compensation consists of pay and benets. Pay and benets are important in attracting people to the organization, retaining qualied employees, and motivating employees to perform well. Base compensation includes wages (payment on an hourly basis), salary (payment across a specied time interval, such as weekly, monthly, or annually), and incentives, or pay for performance. Examples of incentive pay include the piece rate (payment based upon production level); commission (based upon sales); merit raises (salary increases given to better performers only), and bonuses, such as prot sharing. Job evaluation is used to determine the relative worth of jobs within an organization by analyzing their content. It is used to provide a fair compensation system within the organization (i.e., internal equity). Wage and salary surveys are used to compare pay levels for key jobs within the company to those same jobs in other relevant organizations. In this way, the wage and salary structure can maintain external, or market equity.

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Fringe benets are nonmonetary forms of compensation provided to employees, and include various forms of protection programs or programs designed to enrich employees lives. They are typically provided to all employees, and are not based upon merit or performance. Three protection programs are required by law for most employees: social security, workers compensation, and unemployment insurance. Other types of benets include sick leave, paid holidays and vacations, pensions and retirement plans, health, life, dental, and disability insurance, discounts on company products and services, daycare and eldercare facilities, physical tness facilities, legal and educational assistance, parental leave, paid sabbaticals, and exible schedules, among others. Benets tend to inuence recruitment and retention. Cafeteria benet plans (also known as exible benet plans) allow individual employees to pick which benets they will receive, up to a specic dollar amount. This can make the benet package much more effective as a recruiting or retention tool, since the rewards received are well matched to the needs and desires of the individual employees. Employee assistance programs (EAP) provide counseling and assistance to employees in dealing with stressful personal problems, including nancial problems, substance abuse, domestic violence, as well as marital, family and personal counseling. Replacement decisions involve the management of voluntary separations (i.e., quitting or retirement), promotions and transfers, as well as involuntary separations (demotions, terminations, and layoffs). Employee turnover refers to the loss of employees who decide to leave the organization on their own. Exit interviews may be conducted with employees who quit in order to determine why they are leaving. Too much turnover is problematic and expensive for companies, and they will typically try to control it. On the other hand, nancial or other conditions sometimes require managers to reduce the size of the workforce. Downsizing refers to the planned elimination of jobs within an organization. Outplacement services are sometimes provided through external organizations to help employees who have been laid off to nd other work. Again, strict legal requirements normally apply concerning the reliability and validity of criteria used for making separation decisions, and appropriate documentation is required in the event that an employee les a discrimination, wrongful discharge, or other claim against the organization. Labor relations refers to the process of dealing with unionized employees. This process is also sometimes referred to as industrial relations or labor-management relations. This function is receiving much less emphasis in most contemporary organizations, due to the dramatic drop in union membership among American workers. However, in organizations that are unionized, it is a critically important function, since disputes between labor and management can be very expensive and dramatically reduce productivity, to the point of resulting in steep nes or work stoppages under some conditions.

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A union is an organization that represents employees interests in collective bargaining and contract administration with an employer. Federal and state laws govern the organizing process among private and public sector employees. In business, the National Labor Relations Board (NLRB) oversees labor relations in the United States with three functions: (1) conducting unionization elections; (2) hearing complaints about unfair labor practices; and (3) issuing injunctions against employers or unions who have been found in violation of the law. The union organizing process is carefully dened by law, with a very specic set of procedures that both employees and employers must follow. Potential violations of these procedures, called unfair labor practices, are adjudicated by the NLRB. Collective bargaining is used between the union and management in order to agree on a contract that will govern their working relationship for a given period of time (such as two or three years). The union contract contains agreements on issues related to wages and benets, working hours and conditions, job security, and any other legally permitted dimensions that both sides agree upon. It governs the working relationship between the unionized workers and management at the organization for its duration. A grievance procedure is used to resolve disagreements between workers and management regarding the administration of the contract. Under certain circumstances, union members may go on strike (stop working completely) and/ or picket (publicly post and carry signs complaining about the employers actions) in an attempt to force management to make specic decisions that they prefer (such as concessions on wages or job security during contract negotiations). Management may employ lockouts (refuse to allow employees to work) or hire strike-breakers (nonunion workers who agree to do strikers jobs, frequently called scabs), in an attempt to apply counter pressure to the union. It should be apparent that union-management relations is often a very contentious and difcult process. In general, business organizations do everything they can to treat their employees well so they will not want to be represented by a union. Dealing with a union can complicate the management process.

Conclusion
This chapter has covered a lot of ground related to the organizing function. We began by noting that the organizing function of management entails structural issues at three levels in all rms. These include the individual level, with job design; the group level, with organization design; and the organizational level, where the integrating mechanisms of organizational culture and human resource management coordinate efforts across varied structural units. We identied the basic bureaucratic principles of organizing, and the results of their emphasis in organizations that may vary across the mechanistic to organic ends of a continuum. We identied the traditional types of organization design (functional, divisional, and matrix) as well as several contemporary approaches to organization design (including team structures, network structures, and virtual organizations). We noted ve basic approaches to job design, along with the job characteristics model for designing and enriching jobs. We noted that while job design, organization design, and human resource

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systems are formal components of structure, organizational culture is more of an informal or emergent form of structure that integrates employee efforts in an often subconscious manner. Finally, we described how human resource management systems promote integration by attracting qualied employees (through both human resource planning and recruitment and selection), developing qualied employees (through both training and development and performance management), and maintaining an effective workforce (through compensation, replacement decisions, and labor relations), all within a very strictly dened legal framework.

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CHAPTER FOUR Leading

Chapter Four Outline Leading

Introduction Nature of Leading Organizational Behavior Individual Differences Leadership Power and Inuence Traditional Models of the Leadership Process Contemporary Models of the Leadership Process Motivation Historical Foundations of Motivational Theory Basic Motivational Process Content Models of Motivation Process Models of Motivation Groups and Teams Differentiating Groups and Teams Types of Groups and Teams Team Development Group Structure and Process Interpersonal Communication Model of the Communication Process Categories of Communication in Organizations Managing Communication Effectively Managing Change Forces for and Resistance to Change Approaches to Managing Change Popular Interventions Conclusion 54

Introduction
The four functions of management are planning, organizing, leading, and controlling. The leading function focuses on working with and through people to put into practice the plans and activities developed through the planning, organizing, and controlling functions. In Chapter One, we noted that leading involves motivating employees to work together and perform well while directing and coordinating their activities. The leading function thus emphasizes the management of human work behavior. There are several critical dimensions involved in this leading function. These include the understanding of individual differences, leadership, and motivation, as well as effectively managing groups and teams, interpersonal communication, and organizational change. We will touch on each of these topics in this chapter.

Nature of Leading
There is a eld of study devoted to the effective management of employee behavior. Organizational behavior (OB) refers to the study of human behavior in the work setting. As a scientic discipline, its goal is to allow the explanation, prediction and management of employee work behavior. Employee work behavior may be functional or dysfunctional. Functional behavior is positive and constructive, contributing to the realization of organizational goals. Examples would include working hard and persisting until assigned goals are achieved; providing help to coworkers, or helping to resolve disagreements or diffuse conicts. Dysfunctional behavior is negative and destructive, and hinders the achievement of organizational goals. Examples include behaviors such as tardiness, absenteeism, turnover, theft, sabotage, or violence, as well as more complex behaviors such as complaining and sowing discontent or creating conict among coworkers, or engaging in sexual or racial harassment. Managers need to understand the sources of and reasons for employee behavior if they are to successfully manage that behavior by promoting functional behavior and reducing dysfunctional behavior. Several concepts from the eld of OB deserve elaboration to provide a foundation upon which the later sections of this chapter can be built.

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One of the most basic concepts of organizational behavior is the notion of individual differences. The concept of individual differences refers to the fact that all human beings vary in a number of systematic ways. People have different personalities, perceptions, abilities, needs, attitudes, values, goals, and desires. This dimension is most signicant in terms of person-job t. For an employee to be both happy and productive in a job, that employees skills, knowledge, and abilities as well as personality, interests, and preferences need to be a good t for the requirements of the job and for the organizations culture. In addition to abilities and values, which are basic to selection and placement decisions, other important general dimensions of individual differences include personality, attitudes, and perception. Personality refers to an enduring set of stable characteristics that dene the uniqueness of a person. Personality includes both psychological and behavioral dimensions, which may be related to different aspects of work behavior. For example, the general personality dimension of conscientiousness (being responsible and dependable) has been proven to be a powerful predictor of good work performance, and is often used in selection tests by human resource managers. However, most work behavior is learned rather than the direct result of personality. It is this fact that allows managers to have a major impact on employee behavior through the processes of leadership and motivation, which will be discussed shortly. One of the most vexing challenges to many managers is that their subordinates perceive the actions of the manager differently from what the manager intended. Perception refers to the selection, organization, and interpretation of information about the world. It is important to realize that human perception is not a passive system of assessing and transmitting reality to the mind of a person. Rather, it is an active, constructive system of assigning meaning to experience based upon the individual differences that characterize the perceiver. In fact, one of the most dening characteristics of the perceptual process is selective screening, which refers to the fact that since we cannot attend to all of the stimuli that impinge upon our senses at any given time, we both consciously and unconsciously select only certain stimuli to attend to. Thus, every individuals perceptions are colored by his or her personality, needs, attitudes, biases and other factors. Numerous frequent, unconsciously operating perceptual errors that hinder managers understanding of employee behavior include: selective perception (the tendency to perceive things consistently with our existing beliefs, values, or needs); perceptual defense (the tendency to avoid perceiving things that are threatening or that challenge our personal views); stereotyping (unfairly assigning general characteristics to a member of a group, such as assuming that all women are easily swayed by their emotions); halo effect (evaluating a person solely on the basis of one characteristic, either good or bad, such as assuming a more attractive job candidate will perform better); projection (attributing our own characteristics to others); and expectancy effects (where pre-existing expectations bias our perceptions of events, objects, or people, as demonstrated in the self-fullling prophecy, in which a managers belief that a particular employee will perform well or poorly ends up contributing to good or bad performance by that employee due to differential treatment by the manager).

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The results of the employees efforts in the organization will inuence their attitudes about the organization. Attitudes are relatively enduring feelings, beliefs, and behavioral tendencies related to specic objects, people, events, or ideas. Two work related attitudes that are very important in management are job satisfaction and organizational commitment. Job satisfaction refers to the experience of fulllment or discontent that an individual feels related to the job. Job dissatisfaction is associated with several types of dysfunctional work behavior, including tardiness, absenteeism, and turnover, as well as personal outcomes such as poor mental health. Organizational commitment refers to the strength of an employees involvement in and identication with the organization. It is characterized by acceptance of the organizations goals and values, a willingness to exert considerable effort on behalf of the organization, and a desire to remain employed at the organization. High levels of organizational commitment are associated with several types of functional work behavior, including lower levels of absenteeism, turnover, and tardiness, as well as higher levels of productivity. In fact, such commitment is strongly associated with organizational citizenship behavior, or behavior that is not a required part of the job description, but that an employee engages in because it helps the organization. Examples would include providing assistance to coworkers, or promoting the organization in conversations outside of the work setting. Clearly, managers should try to promote job satisfaction, organizational commitment, and organizational citizenship behavior in their subordinates, and should understand the characteristics of their individual workers so that they can tailor their words and actions to the needs and abilities of subordinates individually. We will expand upon this shortly.

Leadership
With the understanding that individual differences may cause different employees to react in different ways to managers actions, we are prepared to explore the critical dimensions of management behavior with regard to the leading function. We will begin with the dimension of leadership. Leadership is the process of inuencing others to attain organizational goals. This process has been studied since the early part of the 20th century, with conceptions of leadership changing over time. Early work identied three basic leadership styles: autocratic (leader as boss, who supervises closely, makes decisions, and tells employees what to do); democratic (leader as coach, who supervises less, promotes participation in decision making, and involves employees in determining courses of action); and laissez-faire (leader as delegator, who basically leaves the employees alone to make their own decision and choose their own actions, with little or no follow up). These styles focus on differences in inuence patterns. The topic of power and inuence has been extensively studied in management in recent years.

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Power and Influence


Power is dened as the ability to inuence the behavior of others. Leaders inuence others through the use of power. Power exists in ve forms in organizations: legitimate, reward, coercive, referent, and expert. Legitimate power refers to the ability to inuence others by virtue of position in the chain of command. That is, the manager has the right to give orders in specic job-related areas, and subordinates are obligated to obey those commands. Reward power refers to the ability to inuence others through the control of incentives desired by employees, such as pay raises, bonuses, promotions, interesting assignments, praise, or recognition. Coercive power refers to the ability to inuence subordinates through the control of threats or punishments, such as reprimands, no pay increase, disciplinary layoffs, demotions, terminations, and even verbal abuse, humiliation of bullying (though these latter methods would not be recognized as effective management techniques). Legitimate, reward and coercive power are called organizational sources of power, since the organization typically grants them to any manager, who can use them at will. The other two forms of power are identied as personal sources of power, since the organization cannot simply grant them to anyone they wish. Rather, employees provide referent and expert power to individuals based upon their perceptions of the personal characteristics of those individuals. Referent power refers to the ability to inuence others because the leader is liked, admired, respected, or looked up to. Thus, a subordinate who identies with and likes the manager may do things to please or gain the approval of that manager. In contrast, expert power refers to the ability to inuence others because the leader has information or expertise that the subordinates want or need. An employee with a difcult problem to solve may ask for help from a manager who has a reputation for creatively solving such problems in the organization. Effective managers use power and inuence carefully. There are interaction effects with the use of different forms of power. A manager who uses lots of coercive power is likely to have less referent power, while a manager who uses lots of reward power is likely to have more. In contemporary organizations, more successful managers tend to focus on the use of reward, referent and expert power, rather than legitimate and coercive power. These concepts of power and inuence are related to more recent conceptions of leadership. Over the past several decades, some management writers have drawn a distinction between the inuence approaches of what they have called leaders versus managers. In this context, leaders are those individuals who base their inuence on a vision and shared values, while empowering their subordinates to achieve goals. In contrast, managers are those individuals who focus on rules and bureaucracy to control their subordinates behavior in accomplishing assigned outcomes. According to this model, a persons leadership style can be that of a leader or manager, or both at different times. The leader establishes direction, aligns, motivates, and inspires employees, while producing change, using primarily reward, referent, and expert power. The manager implements plans, and controls behavior, producing consistent and predictable results, using primarily legitimate, reward, and coercive power.

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Leadership may be formal or informal. Formal leadership exists when an individual has been granted authority by the organization to inuence others (in the form of legitimate power). A committee chair or project manager would be in a position of formal leadership. Often, however, groups and organizations are inuenced by informal leadership. By virtue of personal characteristics, employees may listen to or follow the ideas and suggestions of a member of the organization who does not have a position of formal authority. A well-liked production worker with a general knowledge of employees right to unionize who stands up to a domineering management style and demands the opportunity for a union election in an organization demonstrates informal leadership, based on referent and expert power.

Traditional Models of the Leadership Process


Leadership has been studied in the management literature since the beginning of the 20th century. The traditional approaches are known as the trait, behavioral, and contingency models. During the 1990s, a variety of new approaches began to emerge. These approaches are still being developed. In the next section, we will mention a few of the most widely recognized and most popular approaches in this contemporary category: transactional, charismatic, and transformational leadership, as well as substitute leadership. Trait Model. The rst systematic model of leadership attempted to identify a single set of characteristics that would describe all effective leaders. The results of this research were signicant: no single set of traits or characteristics was found that was always associated with effective leadership. It should be noted that more recent research has indeed shown some general differences between leaders and nonleaders (such as higher levels of drive, honesty/integrity, self condence, emotional stability, intelligence, and desire to lead among leaders). However, these results are not seen as vindication of the trait model, which is viewed as inadequate to understand leadership. Behavioral Model. The next line of research on leadership attempted to identify specic behaviors that were associated with effective leadership. Several lines of research (known as the Michigan studies, Ohio State studies, and the Managerial Grid) indeed identied two general categories of behavior that were associated with effective leadership: task oriented behavior (also called jobcentered behavior, initiating structure behavior, and concern for production) and relations oriented behavior (also called employee-centered behavior, consideration behavior, and concern for people). Task oriented leadership behavior (or initiating structure) is essentially concerned with getting the job done by dening and prescribing subordinates work roles; such as telling people what to do, and when, where, and how to do it. Relations oriented leadership behavior (or consideration) is essentially concerned with peoples feelings, and focuses on developing relationships with subordinates that are based upon two way communication, mutual trust, respect and empathy.

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It is generally agreed at this time that effective leadership requires a blend of task and relations behavior, depending upon the circumstances. Contingency Models. Over time, studies from the behavioral approach demonstrated that different leader behaviors were more or less effective in different circumstances. This represented a major shift in leadership research, from an attempt to identify factors explaining leadership in all circumstances to an attempt to understand leadership differently in different circumstances. The essence of the contingency, or situational approach, was to assume that effective leader behavior would vary depending upon the specic characteristics of the given situation. Several well-known models in this category will be briey mentioned. Fiedlers contingency theory is also called LPC theory, for the so-called least-preferred coworker scale that was used to dene a managers leadership style. This model identied specic situations in which particular leadership styles would be most effective. Fiedler identied two styles of leadership (essentially task and relationship), and demonstrated that one or the other of these two styles tended to be more effective depending upon several contingency variables (which included the quality of leadermember relations, the degree of structure in the groups task, and the degree of position power possessed by the leader). The model assumed that leaders tended toward either a task or relationship style that they could not easily vary, and that leaders should therefore seek situations that were a good match for their existing style, rather than try to change their preferred style. For a variety of reasons, support for this model has waned. However, it is still recognized as important as the rst systematic attempt to develop a contingency model of leadership. More recent leadership models tend to emphasize the importance of varying leadership behavior to meet the demands of the situation. Hersey and Blanchards situational theory is an extension of the behavioral model. Their approach identied four styles of leadership (telling, selling, participating, and delegating) that would be more or less effective depending upon the characteristics of subordinates (dened as follower readiness level, which is the ability and willingness of subordinates to perform the work). This model focused on the importance of understanding individual differences among subordinates, and adapting leadership style to those differences. Thus, the Hersey and Blanchard model was similar to the Fiedler model in emphasizing the importance of diagnosing the situation, but differed in not only the contingency variables used (follower readiness), but also in the emphasis on adapting leadership style to t the situation. Houses path-goal theory identied ways in which effective leaders can motivate their subordinates to perform well. This model also identied four styles of leadership (labeled supportive, directive, participative, and achievement-oriented), but used a different set of contingency variables to identify when to use each style. Houses contingency factors included personal characteristics of group

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members (such as skills and needs) and characteristics of the work environment (such as nature of the work group, the authority system, and the task structure). The path-goal model essentially said that the leader must boost employees motivation to perform well by clarifying the necessary path to success and linking desired rewards to good performance. Thus, this model entailed diagnosis of not only the situation, but also individual differences among subordinates, and it required the adaptation of the leaders style to the demands of the situation. Vrooms Decision Model represents a slightly different contingency approach. It was developed by Vroom, in conjunction with Yetton and Jago (and is sometimes referred to as the Vroom-Yetton-Jago Model). Rather than focusing on an array of leadership styles applicable to many situations, Vroom focused on the question of how much participation in decision making is appropriate for subordinates under different circumstances. The model has gone through various iterations over the years. It essentially identies ve leadership/decision making styles: decide, consult individually, consult group, facilitate, and delegate. The model uses a decision tree to diagnose a situation according to seven situational variables, (ranging from the signicance of the decision and the importance of commitment to the characteristics of the team and the leader), ultimately recommending a specic leadership/decision style depending upon the relative emphasis on a quick decision versus developing employees. This model has considerable practical utility for the manager in determining how much to involve subordinates in any given decision. It also assumes that managers can and should vary their leadership style depending upon the circumstances.

Contemporary Models of the Leadership Process


The dramatic acceleration of the pace of change through the globalization of markets from the 1980s to the present has resulted in increased urgency for understanding aspects of leadership that are associated with success in such uncertain and volatile business environments. Consequently, there has been considerable innovative research and theorizing in the area of leadership in recent years. Many models and approaches have been published. A few have been widely recognized in general management discussions. Those frequently discussed models will be mentioned here, and include the transactional, charismatic, transformational, and substitute leadership models. Much of the recent work on leadership has focused on the role of vision and shared values as the basis for the leader-follower inuence relationship, as opposed to the traditional command and control emphasis on following orders. This difference is reected in the discussion above on leaders versus managers. In fact, recent contributions have labeled the essence of that traditional authority based approach as transactional leadership. Transactional leadership entails motivating and directing subordinates through the use of rewards and punishments contingent upon their behavior. This transactional approach emphasizes a leader member exchange. Depending upon the

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level of performance of subordinates, they receive either rewards or punishments from the leader. This approach forms the basis for the traditional models of leadership just discussed. However, recent leadership theorists have argued that this transactional approach, while necessary to leadership, is not sufcient to develop truly effective leaders. They focus on the concepts of vision and shared values as means of inspiring empowered followers, rather than simply rewarding obedient subordinates. The charismatic leadership approach emphasizes the motivation and inspiration of followers through the shared vision and values offered by a striking and compelling leader. Charismatic leaders are characterized by strong, dynamic personalities and high levels of self-condence. They present a clear vision for the future based upon a strong set of values and high expectations for performance, and model those values and expectations through their actions with subordinates. These actions promote trust and loyalty among subordinates, who are inspired toward maximum effort and rewarded by the support, empathy and strong demonstrations of condence in them by their leader. Examples of charismatic leaders include Richard Branson, CEO and founder of the Virgin Group, President Bill Clinton, Pope John Paul II, Martin Luther King, Jr., and Adolph Hitler. These examples presumably show that charismatic leadership, while potentially a very powerful motivating and rallying force for subordinates, does not always have uniformly good or desirable consequences, since subordinates may be rallied to do either good things or bad things. The concept of transformational leadership was developed in conjunction with the above concepts of transactional and charismatic leadership. Theorists noted that transactional leaders do not empower, excite or inspire subordinates to transcendent performance, while transformational leaders do. Transformational leadership combines vision, charisma, integrity, empowerment, and inspirational motivation to bring about innovation and change in organizations. The difference between charismatic and transformational leaders is thus the emphasis on effectively generating change in both employees and the organization by helping employees to look at problems in new ways through a willingness to question the status quo. Transformational leaders arouse subordinates enthusiasm, creativity, and aspirations toward unprecedented performance by transcending their own self-interests to achieve a common dream for the good of the organization. Examples of transformational leaders include Jack Welch, the CEO who transformed GE from a lumbering bureaucracy to a vibrant, highly protable multinational powerhouse. Transformational leadership thus incorporates the transactional and charismatic models. It includes the idea of leader/member exchange based upon legitimate, reward, and coercive power, but it goes on to incorporate less tangible aspects of inuence, including the vision, values, and strong personality associated with the charismatic model (reecting referent and expert power). However, the transformational model moves beyond these two approaches with its emphasis on the positive transformation of both employees and the organization. Transformational leaders are effective

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at transforming not only people, technology and products, but also organizational mission, strategy, structure and culture. Since transformational leadership is behaviorally based, it can be learned. In addition to the task and relationship behaviors focused on by transactional leaders, transformational leaders add charisma and inspirational motivation. While transactional leadership is best in stable, predictable situations, transformational leadership is most appropriate in uncertain, rapidly changing environments. Research demonstrates that transformational leadership is more effective than transactional leadership in boosting both productivity and morale, and in reducing turnover. Finally, many management writers note recent work on the substitute leadership model. This model observes that under certain circumstances leadership is not needed because other factors can replace a formal leader and make leadership either unnecessary or less important. This is, of course, a contingency model, since it is situationally specic. Substitutes for leadership include characteristics of subordinates (including employee maturity and commitment to professional standards, where experience, skills, knowledge, and motivation to perform autonomously can replace the need for supervision) as well as characteristics of the situation (such as interesting and motivating work, job design that empowers workers, or the use of self-managed work teams). Such substitutes for leadership can free up the managers time to engage in more innovative, value-adding activities, rather than focus on overseeing the activities of subordinates. Thus, it is in the interests of organizations to consider the use of leadership substitutes as another tool in gaining competitive advantage. The development of leadership theory is certain to continue. This is one area that every practicing manager should pay attention to.

Motivation
While leadership is designed to inuence the behavior of subordinates toward the achievement of organizational goals, motivation is the tool managers use to accomplish that. Managers need to apply the principles of organizational behavior to understand the motivational structure of individual employees, and then make appropriate rewards contingent upon effective performance by those individuals. This is the essence of the basic motivational process. However, the motivational process was not always as well understood as it is today.

Historical Foundations of Motivational Theory


Motivational concepts have been central to many aspects of management theory over the years. We mentioned the approach known as scientic management in the previous chapters discussion of job design. Frederick Taylor is most strongly associated with this approach, which developed as factory production replaced individualized craftwork after the industrial revolution of the later 19th century. Scientic management described how the relationship between people and work tasks

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could be systematically evaluated in order to redesign the work process to maximize worker performance and overall efciency by identifying the one best way to do the job. Taylor advocated the careful study of work tasks, their codication into written rules and standard operating procedures, the selection and training of workers to match these job requirements, and a pay system that rewarded high performance. Scientic management thus assumed that the basic motivator for workers was money. As noted in the chapter on job design, production problems were soon recognized, even with the application of the scientic management process. Further research at the Western Electric Companys Hawthorne Works in the 1920s and 1930s by Mayo and Roethlisberger identied what has come to be called the Hawthorne effect, that factors beyond job requirements and pay level, (including things like group norms or the relationship with the supervisor), can signicantly inuence workers performance. This work led to a new concept of worker motivation with what has been called the human relations movement, that workers are motivated not only by money, but also by social relationships at work. The researchers concluded that group inuences can strongly impact individual behavior and performance, and that money may be less important than group standards, sentiments, and security. Thus, researchers advocated that managers be trained in techniques of effectively managing subordinates to maximize productivity and satisfaction. This recognition formed the basis for the scientic study of work behavior and the birth of the eld of organizational behavior. The next step in the development of motivational theory came after World War II, when Douglas McGregor developed his concept of Theory X and Theory Y. This was essentially recognition that different managers made different assumptions about what motivates workers, and that they design work and treat workers differently based on those assumptions. Theory X managers assume that workers are inherently lazy and lack ambition, and that managers must control their behavior through rewards and punishments to ensure productive performance. Theory Y managers assume that workers inherently enjoy working and making meaningful contributions, and that they will perform well through self-direction and self-control when they are committed to organizational goals. The concepts of Theory X and Theory Y are widely used in management discussions today. It is clear that while there are some workers who behave according to Theory X, there are many more North American workers who seem more closely aligned with Theory Y. The management approach that is used must match the motivational pattern of the worker. Because of this, we still have job designs based on both job simplication on the one hand, and job enrichment on the other. The understanding of individual differences that has developed through the systematic study of organizational behavior has made the contingency approach basic to managerial practice: what works in one situation may not work in another situation, because of differences in circumstances. This is true not only with leadership and motivation, but with most issues related to human behavior in the workplace.

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Basic Motivational Process


Motivation refers to the forces that energize and direct behavior toward specic goals. Motivation is based on the concept of needs. Needs are physical or psychological deciencies that a person experiences, such as hunger, boredom, or lack of emotional support. Goals are the results the individual expects to achieve by engaging in a particular behavior (such as buying a candy bar to relieve hunger, renting a movie to relieve boredom, or calling a friend for supportive conversation). The satisfaction of a need constitutes a reward. Rewards may be either extrinsic or intrinsic. Extrinsic rewards are desired outcomes that are administered by some source outside of the person, such as a managers provision of a pay raise or congratulations on a job well done. Intrinsic rewards are desired outcomes that are generated within the person, such as a workers feelings of accomplishment after having solved a particularly challenging problem. Behavior that is performed to achieve a particular external outcome (such as obtaining rewards or avoiding punishment) is called extrinsically motivated behavior. Behavior that is performed for the satisfaction involved in just engaging in that behavior is referred to as intrinsically motivated behavior. Going to work tends to be extrinsically motivated, while playing games tends to be intrinsically motivated. As noted above, there are often wide individual differences among employees regarding what motivates them. Employees are typically motivated by a combination of intrinsic rewards (such as challenging work and the opportunity to achieve) as well as extrinsic rewards (such as higher pay and promotions). However, the manager must understand the specic needs of individual employees in order to tailor their leadership efforts appropriately. While this might seem simple, the relationship between motivation and performance is actually more complex. Factors beyond motivation impact performance. Managers often nd it helpful to analyze performance in the form of an equation: performance = motivation X ability X situational factors. The terms motivation and ability should be clear here. Situational factors refer to any aspect of the situation other than motivation or ability that directly hinders performance, such as role clarity or organizational support. That is to say, in order to perform well, the employee must be motivated (i.e., have good performance as a personal goal), the employee must have the ability needed to do the work, and situational factors must be supportive of effective performance (for example, the employee must understand exactly what is expected, and must be able to access resources that are required to perform adequately). Using this model, managers can analyze performance and determine whether the appropriate action needed to remedy a performance deciency is the application of motivational theory, the provision of additional training, or some other factor (such as role clarication of the provision of specic resources, like new technology). If the performance deciency is the result of a lack of motivation, managers have a variety of motivational theories to draw on for help. Approaches to motivation in the workplace fall into two general categories: content models and process models. Content models of motivation attempt

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to identify the set of needs that employees try to satisfy through their work behavior. Process models try to explain the process of motivated choice; that is, how employees decide to engage in one behavior over another in an attempt to satisfy a need (such as working extra hours in hopes of a raise versus stealing from the employer as a way to boost their income).

Content Models of Motivation


As noted above, needs are the deciencies that motivate behavior. Content models of motivation attempt to systematically identify the sets of needs that motivate work behavior. They can thus serve as powerful tools for managers who want to understand the behavior of specic employees. By using the content models, managers can identify likely needs that are important to an employee, and tailor rewards and job designs to meet those needs, thereby boosting performance. We will discuss hierarchy of needs theory, ERG theory, two-factor theory, and acquired needs theory. Hierarchy of Needs Theory. Abraham Maslows hierarchy of needs theory is probably the best known of the content theories. The model postulates that people are motivated by a set of ve needs, arranged in a hierarchical order from lowest to highest as physiological, security, belongingness, esteem, and selfactualization. Lower order needs take precedence over higher order needs, such that needs higher in the hierarchy will not emerge to motivate behavior until the needs below them have been largely satised. Physiological needs include basic physical needs for things like food, water, air, sex, and freedom from pain. In the workplace, physiological needs often have to do with working conditions, such as noise, temperature, rest breaks. Security needs (sometimes called safety needs) include the need for a safe and secure physical and emotional environment. They would be satised in the workplace through things like job security, adequate pay and benets, and insurance programs. Belongingness needs (sometimes called social needs) reect the need for love, affection, and acceptance by others. Relationships with coworkers and supervisors on the job fall into this category. Esteem needs refer to needs for self respect and recognition from others, including dimensions such as a desire for organizational status through job titles as well as praise and recognition for work accomplishments through awards or other means. Finally, self-actualization needs reect the desire to realize ones potential for growth and personal development, and might be satised at work through challenging assignments, or opportunities for achievement and advancement. Managers can apply this model by getting to know their subordinates to nd out which of these levels are most important to them, and then tailoring rewards to those levels. ERG Theory. The ERG theory developed by Clayton Alderfer is a simplied version of Maslows theory, which breaks the hierarchy into three levels: existence needs (Maslows physiological and security needs), relatedness needs (Maslows belongingness needs), and growth needs (Maslows esteem and self-actualization needs). In addition to the fewer levels in the hierarchy, ERG theory is more exible in assuming that all three levels in the hierarchy can motivate behavior at the same time, rather than Maslows idea that higher level needs only emerge after lower level needs have been satised. There is generally more research support for Alderfers model than for Maslows. The ERG theory would be applied by a manager in the same basic way that Maslows theory is applied. 66

Two-Factor Theory. Frederick Herzberg based his two-factor theory on the role of job satisfaction in promoting motivation. After evaluating factors that resulted in satisfaction or dissatisfaction on the job, Herzberg concluded that two sets of factors are involved in both satisfaction and motivation. One set of factors, called hygiene factors, are manifest in the job context, and include things like pay, working conditions, rules and policies, and relationships with supervisor and coworkers. Hygiene factors can cause dissatisfaction and reduce motivation. However, even when they are at an acceptable level, hygiene factors will result in no more than a neutral state. According to Herzbergs research, a separate set of factors is responsible for promoting satisfaction and thereby motivation. That second set of factors is called motivators (or satisers), which are manifest in the job content, and include the work itself, and opportunities for achievement, responsibility, recognition, advancement, and personal growth. Only motivators will provide job satisfaction and be able to motivate workers to higher performance levels. Managers apply the model by keeping hygiene factors at an acceptable level to eliminate dissatisfaction, and increasing motivators to promote greater satisfaction and performance. Acquired Needs Theory. David McClelland developed a model identifying three motives that tend to be acquired or developed over time based upon life experiences. Three needs are strongly related to workplace behavior: need for achievement (desire to master complex tasks, attain a standard of excellence, or perform better than others); need for afliation (desire to have close personal relationships, be liked by others, and engage in social activities); and need for power (desire to inuence and control other people and situations). Managers, salespeople, and entrepreneurs often have a high need for achievement. Successful managers may have a low need for afliation, probably related to the fact that managers cannot focus on pleasing everyone. Top managers tend to have a high need for power. When properly assessed, these traits can be used as part of the human resource selection process in determining which applicant to hire or promote into a particular position. McClelland argues that these traits can be learned. Aspiring managers may want to work to boost their needs for achievement and power, since these may be associated with managerial success. By way of conclusion to this section, we should point out the similarity across these varied motivational models. Considerable research has demonstrated that a distinction between higher order needs and lower order needs is appropriate. Lower order needs are reected in physiological, security, existence, and relatedness needs, as well as the need for afliation, and hygiene factors.

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Higher order needs are embodied in esteem, self-actualization, growth needs, motivators, and the needs for power and achievement. Higher order needs are less important when lower order needs are not satised, so managers should strive to satisfy their workers lower order needs rst, and then focus on higher order needs to maximize employee performance and development.

Process Models of Motivation


While content models help us to identify the needs that motivate employee behavior, they do not help us to understand why employees choose one course of behavior over another in trying to satisfy those needs. Process models try to explain this process of motivated choice by describing ways in which employees select a particular course of action to try and get what they want. There are four important process models of motivation: expectancy theory, equity theory, reinforcement theory, and goal-setting theory. Expectancy Theory. This motivational model notes that the probability of any particular behavior is related to the workers beliefs about two things: their ability to perform the task successfully, and the likely outcomes (desirable or undesirable) of that performance. The model includes three critical concepts: expectancy (the belief that working hard will result in good performance); instrumentality (the belief that good performance will lead to specic outcomes, such as higher pay or more responsibility); and valence (the perceived value of those specic outcomes). Thus, if the worker believes that working hard will result in good performance, and that good performance will result in higher pay, the worker is likely to work harder if he or she wants higher pay. However, if the worker believes that good performance will result in increased responsibility, and the worker does not want increased responsibility, then that worker is not likely to work harder to perform well. The critical factor for applying the expectancy model is understanding how the situation looks to the employee. It is the workers beliefs and perceptions that are critical to determining what that worker chooses to do. Again, the manager must assess individual differences in order to determine appropriate managerial actions. Equity Theory. The equity model focuses on employees feelings of fair treatment in the workplace. Equity theory proposes that people are motivated to maintain fair and equitable relationships when they compare themselves to relevant others. Equity is a condition which exists when the ratio of one persons outcomes to inputs equals that of a relevant other person. For example, if a worker feels that her pay (outcome) is equivalent to that of others in the organization who are making similar contributions (inputs, such as level of performance, skill, and education), she will experience equity. However, if she feels that others in the organization are receiving the same or more pay (others outcome) for lesser contributions (others inputs, either lower performance, less skill and education, or both) she will experience inequity. Obviously, the perception of equity is highly subjective and dependent upon the viewpoint of the individual worker, reinforcing the importance

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of assessing individual differences. Inequity is an uncomfortable state, which the worker will be motivated to reduce. The most common ways of reducing perceived inequity are: changing inputs (such as working less hard), changing outcomes (such as obtaining a pay increase); changing perceptions (distorting beliefs to create equity, perhaps by concluding that the person with the higher pay has a more stressful position, or that the focal person is obtaining other non-monetary rewards that make up the difference); shifting to a new reference group (comparing herself only to others who are receiving comparable pay); or leaving the situation (often by quitting or transferring to another work unit). Managers should apply this model by realizing that employees are very concerned with the fairness of their treatment, and they are always comparing themselves to others. Managers must understand how employees view the fairness of their outcomes, and must strive to maintain equity in order to avoid motivational problems. Reinforcement Theory. Reinforcement theory is a complex and detailed model of the relationship between behavior and its consequences. The law of effect states that behavior followed by positive consequences is likely to be repeated, while behavior followed by negative consequences is not. Operant conditioning refers to the control of behavior through the manipulation of its consequences. A contingency of reinforcement is the relationship between a behavior and the events that precede and follow it. Managers can use four different types (or contingencies) of reinforcement to inuence employee behavior. Positive reinforcement refers to the provision of a reward after a behavior, and tends to increase the probability of the behavior. Examples include pay increases, bonuses, promotions, assignment of more interesting work, praise and recognition, and numerous other consequences that individual employees might value. Negative reinforcement (also called avoidance learning) refers to the removal of an unpleasant event after specic behavior. Examples include the removal of a threat (such as fear of being red after three unexcused absences in a quarter, which causes an employee to come to work regularly), or actions taken to eliminate an unpleasant situation (such as when an employee nishes a report to stop the boss from nagging about it). Negative reinforcement also increases the probability of a behavior. Punishment refers to the addition of an unpleasant event after a specic behavior, and tends to reduce the probability of that behavior. Examples would include ring an employee who gets into a ght at work, or humiliating an employee who publicly challenges the bosss authority. Finally, extinction refers to the withdrawal of a previous reinforcing consequence after a behavior, which causes the behavior to die out. Undesirable behaviors can often be eliminated if the positive consequences that follow them are eliminated. For example, if team members stop responding to the disruptive jokes of one person, that person is likely to stop making such jokes. In managing employee behavior, not only the type of reinforcement is important, but so is its administration. Schedules of reinforcement refer to when and how reinforcement is administered. Reinforcement may occur as continuous reinforcement (where every instance of a behavior is reinforced) or as partial reinforcement (where only some instances of the behavior are reinforced).

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Four partial reinforcement schedules are commonly used in management: xed interval (where the employee receives the reinforcement after a xed time period, such as with a weekly paycheck); variable interval (where the employee receives the reinforcement after varying periods of time, such as random compliance audits for record keeping); xed ratio (where the employee receives the reinforcement after a predetermined number of responses, such as a bonus provided to a car salesperson after every 8 automobile sales); and variable ratio (where the employee receives the reinforcement after a varying number of responses, such as the provision of a paid day off after varying numbers of days of overtime work). In terms of managerial applications, managers should realize that the best type of reinforcement to use is positive reinforcement, since it tends to engender trust and supportive relationships with employees. Punishment often has undesirable consequences, including employee anger, resentment, or repetition of the behavior when they feel they wont be caught. Punishment is appropriate in extreme circumstances, such as for dangerous or illegal behavior. Continuous reinforcement tends to lead to rapid extinction (the disappearance of the learned response), so it is more useful in training sessions to promote new learning. Partial reinforcement is more resistant to extinction, and tends to promote prolonged responding without reinforcement. Thus, the manager who wishes to use rewards to maintain good performance might administer them on a variable ratio or variable interval schedule for maximum effect. Goal Setting Theory. This is the motivational theory that tends to be easiest for managers to apply and often leads to the best results in terms of performance improvements. Goal setting theory proposes that challenging but achievable goals will increase performance if they are accepted by subordinates who are able to monitor their progress towards them. There are four basic components to goal setting theory: goal specicity (extent to which goals are detailed, concrete, and unambiguous); goal difculty (extent to which goals are challenging to accomplish); goal acceptance (extent to which people understand and agree to goals); and performance feedback (information about past performance that claries the degree of progress being made toward goal achievement). Note how these dimensions are included in the guidelines for effective goal setting outlined in Chapter Two. The managerial implications of this motivational model are clear-cut. Managers should use specic, challenging goals that employees accept (where acceptance can be promoted through participation in goal setting), and they should provide employees with frequent, specic performance based feedback. In this way, employees will be energized to put forth high levels of effort to attain high level performance objectives. In this section we have seen how process models can help supervisors to manage the motivational process by linking specic, desired rewards to behaviors associated with meeting organizational objectives. In the case of expectancy and equity theories, managers must understand employees perceptions and make sure that the desired and appropriate level of reward is indeed contingent

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upon the desired level of performance. The reinforcement and goal setting models get even more concrete in terms of available techniques to directly manage behavior. With these tools in their toolkit, managers will be much more likely to succeed, since their subordinates will be performing well.

Groups and Teams

Ever since the industrial revolution, people have worked in a group setting. As noted above, at the beginning of the 20th century scientic management focused on the individual worker, while the human relations movement and Hawthorne studies of the 1930s documented the signicant effects of groups on individual motivation and performance. It was not until the 1970s and 1980s that the real power of groups was harnessed by American business. During the 1970s as global competition in business was just beginning to emerge, American companies began to experiment with the use of job designs based upon teams rather than focusing on the individual worker alone. The improvements to performance, productivity, and morale were profound. By the 1980s, even though many companies considered their work with teams to be proprietary, word got out about their power and they were quickly adopted across the American workforce. In the 21st century, teams are widely used worldwide. Teams have become highly popular for a number of reasons. Tasks involving multiple skills that rely on effective judgment and accumulated experience are often performed better by teams than by individuals. Since team composition can be readily adjusted, teams have proven to be much more exible and responsive to change than individual work assignments. Finally, the job characteristics model discussed in the previous chapter noted the motivational value of several core job dimensions. We noted that work teams provide groups of workers with the motivating factors of authority, responsibility, and control needed to make relevant decisions, in order to make the work more meaningful and challenging and to promote synergy among team members. In this way, the use of teams boosts involvement, motivation, productivity, and worker satisfaction. It is important to note that while all teams are groups, not all groups are teams.

Differentiating Groups and Teams


A group consists of two or more people who interact regularly to accomplish specic goals, where individuals are held accountable for their own work, but not the output of the total group. A team consists of two or more individuals with complementary skills who coordinate their work and hold each other mutually accountable for the achievement of common performance goals. To put it simply, the major difference between a group and a team has to do with what happens when someone drops the ball. In a group, if one person doesnt do what he or she was supposed to have done, the output of the group suffers. In a team, if one persons performance drops, the other members ll in to make sure that the groups output does not suffer. As noted previously, an

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effective team generates synergy, through which the output of the team is greater than what could be achieved by the efforts of the individual members working alone (often referred to as the whole being more than the sum of the parts). In a team, there is a sense of shared purpose and collective responsibility that is absent in a group. A group tends to have a clearly dened individual leader who holds members individually accountable for their own work and who typically dominates the inuence and decision making process. A team, on the other hand, tends to involve shared leadership among many or all members, with both individual and mutual accountability for collective output, and active participation among all members in decision making.

Types of Groups and Teams


A variety of different types of groups and teams exist in organizations. At the most basic level, we need to distinguish between formal and informal groups. A formal group is created by management as part of the formal structure of the rm to serve a particular organizational purpose. The classic example would be the individual work unit or department, consisting of a manager and the group of subordinates who report to him or her. An informal group is an unofcial group, created by a collection of individuals within the organization who share common interests in order to meet their common needs. Informal groups emerge from the spontaneous relationships that develop among people in the workplace. They include friendship groups, which are composed of individuals who like each other and enjoy socializing together (such as a group of workers who go to lunch regularly, or play poker or golf together on the weekends), and interest groups, which are composed of individuals who share a common interest or need relating to the organization, such as a desire for better pay or working conditions, opportunities for work sharing or extime, or an interest in company sponsored car pooling. Organizational work is done in formal groups, not informal groups. Our focus here is on the formal groups that are used in organizations to accomplish work. There are several varieties of formal group that are widely used in organizations. Formal groups may be functional or cross-functional. A functional group is composed vertically, with members coming from within the same department or functional area, such as all members within accounting, or all members within marketing. A manager and his/her subordinates constitute a functional group. A cross-functional group is horizontally composed, with members coming from different departments or functional areas, such as a combination of members from accounting, marketing, production, and nance. The project teams used in the matrix structure described in the previous chapter are examples of cross-functional groups. The term cross-functional team is also widely used to refer to these groups.

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A variety of other formal groups may be identied. The individual work unit of manager and subordinates is variously called a command group, department, unit, functional team or vertical team. A group of employees assigned to work on a specic objective would be called a task group. There are two types of task groups: committees and task forces. A standing committee is a permanent group that focuses on a specic topic or task on a continuing basis, such as a diversity, safety, or grievance committee. Task forces (also known as ad hoc committees or project teams) are temporary groups formed to solve problems or accomplish certain goals within a specic timeframe. As noted above, the use of teams has become widespread in contemporary organizations. Such teams may be permanent, such as the top management team, or temporary, such as product development teams. Among the widely used terminology for teams in todays organizations are: employee involvement teams and quality circles, which consist of groups of workers who meet outside of their regular job responsibilities to share ideas and suggestions for continuous improvement of the work process; selfmanaged work teams (also called self-managing work teams, autonomous work groups, self-directed teams, or process teams) which consist of an empowered membership with team level responsibility and autonomy to manage the completion of work on an entire component, product, or service; parallel teams (also called problem-solving teams or special purpose teams) that deal with a specic problem or issue on a part-time basis outside of their normal job requirements; and nally, the virtual team, composed of geographically separated members who meet face-to-face only rarely if at all, and interact regularly through electronic communication, such as email, telephone, fax, videoconferencing, and groupware (computer network software that enables people at different workstations and locations to collaborate simultaneously). Virtual teams are, of course, a basic component of the virtual organization described in the previous chapter. Virtual teams may be cross-functional teams or ongoing self-managed work teams. They may be referred to as global teams if their membership spans multiple countries. Finally, it should be noted that this varied terminology describing types of groups and teams is constantly developing and often varies by organization and author. The terms group and team may be used interchangeably in some contexts. Be aware that there is not necessarily a single correct denition or usage for many of these terms.

Team Development
Todays emphasis on teams over traditional work groups has to do with the greater effectiveness of teams over groups. That difference in effectiveness is related to the development of an effective group process among the members. In this section we will describe the basic stages of group development, while in the next section we will outline the aspects of group structure and process that contribute to high levels of team performance.

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It is generally recognized that groups traverse a predictable set of stages of development as they grow from being just a collection of separate individuals to a smoothly operating high performance team. While different terms may be used to describe these stages, the easiest set of terms to remember is forming, storming, norming, performing, and adjourning. As groups move through these stages of development, they manifest improvements in both group process and in efciency and effectiveness. Each of these stages will be described in turn. Forming. The rst stage of team development is forming, (also known as orientation), where members initially meet and begin to get to know each other. It is a time for orientation to the group and interpersonal testing, as members determine what the groups goals are and what denes acceptable behavior for members. Storming. The storming stage (also called the dissatisfaction stage) entails varying levels of emotionality and tension. Conict and disagreement often emerge as members express differences over perceptions of the groups mission and how they ought to proceed. Subgroups and coalitions may emerge as members jockey for position or attempt to inuence outcomes. This conict must be effectively resolved if the group is to continue to develop into a team. If it is not resolved, the group may fail outright and disband, or continue to function at a minimally acceptable level of performance characterized by ongoing conict. Many groups never develop into teams because of unresolved problems at the storming stage. Norming. During the norming stage (also referred to as resolution) the conict over goals, member roles and acceptable behavior is resolved and effective team behavior begins to emerge. Members have achieved a consensus on the overall mission, as well as on expectations for the behavior of members. They see themselves as a team rather than a collection of individuals. Performing. The performing stage (also known as the production stage) reects the maturation of group structure and process and is manifest in high-level performance as an actual team. The team demonstrates exibility to adapt to changing goals and circumstances, and demonstrates synergy among the contributions of the members. Adjourning. The nal stage of team development occurs when the team is disbanded. The adjourning (or termination) stage is common in temporary teams and task forces, which are disbanded after their project is completed. Ideally, members feel that they have achieved signicant accomplishments, and would be willing to work with their team members again on future projects. Permanent teams would ideally reach and remain in the performing stage. However, various factors can lead to renewed conict and deterioration of team process.

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The loss or addition of members, changes in goals or assignments or other factors can reduce the effectiveness of a team. Thus, effective team management requires ongoing attention from managers, team leaders, and team members in order to ensure that conict is addressed and worked through, and that team norms remain adaptive and functional, contributing to overall effectiveness. In order to ensure such effectiveness, team leaders and members need to understand some basic factors related to group structure and process.

Group Structure and Process


Group structure refers to the objective characteristics of the group, including dimensions such as goals, size, member composition, and leadership. Group process refers to the patterns of interactions, behavior, and relationships that develop over time as members of the group work together, including dimensions such as roles, norms, conformity, and cohesiveness. Each of these dimensions will be addressed in turn, with emphasis placed on the characteristics associated with mature, effective groups. Goals. Goals refer to the outcomes sought by members of a group. In an effective group, members are committed to common goals. While there will always be a difference between individual and team goals, the introduction of a superordinate goal can often help to focus member efforts and energy. A superordinate goal is a higher level objective that all members believe in, which can only be accomplished through the mutual effort of all members. Effective groups are characterized by a strong and unied commitment to a common goal or mission. Size. Work groups and teams are small, interacting groups, in which all members can meet and work together at any given time. This typically requires a size range of 2-20 or so members, with the ideal size somewhere in the range of 5-12 members. Groups of this size have sufcient diversity in background and experience to promote creativity, yet few enough members to allow everyone to speak and be involved in all matters. Effective teams may be of any size depending upon the skills and commitment of the members, though the 5-12 size makes effectiveness more likely. Member composition. This dimension refers to the diversity of skills, knowledge, experience, and personal/cultural background of the team members. In general, heterogeneous teams with higher levels of diversity tend to be more creative and effective than homogeneous teams (those with limited diversity). However, heterogeneous teams often have more conict and disagreement related to these differences, making them harder to manage. Effective teams are characterized by a diverse member composition with complementary skills, where all team members have the interpersonal skills necessary to address and work through differences of opinion.

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Leadership. A formal group will typically have an appointed or elected leader. Command groups normally have the leader assigned by management. Task groups such as committees and task forces may have the leader either assigned or selected by the group members, with selection processes varying from election to volunteerism. Some team structures such as self-managed teams may use a largely shared leadership structure, with one individual either ofcially or unofcially designated as the team leader to serve as liaison with upper management and other work units. As noted in the discussion of leadership, the processes of social inuence that constitute effective leadership may be formal or informal. Thus, a group with a formally designated leader may have one or more other individuals who are very inuential in team actions and decisions based upon the respect accorded their opinions by other team members. In general, effective groups are characterized by shared leadership. The member(s) with the greatest expertise relating to the problem at hand should always have the most inuence on group decisions. Member roles. A role is an organized group of behaviors. There are three sets of roles that are typically performed by group members: task oriented, relations oriented, and self oriented roles. Task oriented roles (also called task facilitating roles) are focused on accomplishing the teams task. These roles include behaviors such as initiating ideas or action plans, giving or seeking information, and coordinating or summarizing ideas or proposals. Relations oriented roles (also called maintenance or socioemotional roles) are focused on maintaining harmony and good feelings among members. These roles include behaviors such as supporting or encouraging others, reducing tension or harmonizing differences between members, compromising, and following the lead of others. Self oriented roles (also called selfinterest roles) are focused on meeting individual members personal needs, often at the expense of the group. Such roles include behavior like blocking progress, seeking recognition, dominating, or avoiding involvement. Note that the task and relations oriented behaviors parallel the two categories of effective leadership behavior, but that in a group setting, these behaviors can and should be carried out by multiple members. Effective teams are characterized by an appropriate blend of task and relationship behavior, with minimal or no self-oriented behavior. Norms and conformity. Norms are shared expectations or standards regarding appropriate behavior in the group. Team members will typically behave in accord with group norms, and will bring pressure to bear on those members who do not. Conformity (including the blind adherence to expected behavior) may occur in groups under such circumstances. Conformity may occur because of real or imagined pressure, or because the member has internalized group beliefs and values to such an extent that the behavior is automatic. Norms may be functional or dysfunctional. Effective groups and teams consciously manage their norms to make sure that they are always contributing positively to the group process.

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Cohesiveness. Cohesiveness refers to the degree to which members are attracted to the group and wish to remain in it. Cohesiveness tends to improve morale within the team, but it only improves productivity in circumstances where team norms focus on the achievement of organizational goals. One powerful example of this relationship is the phenomenon of Groupthink. Groupthink was a term coined by Irving Janis to describe a group that is highly cohesive and conforming, in which a desire to conform to the group undermines the groups ability to critically evaluate problems and alternatives, leading to risky or ineffective decisions. Examples of Groupthink include President Kennedys failed invasion of the Bay of Pigs and the decision to launch the space shuttle Challenger under unusually cold conditions, resulting in the loss of the vehicle and all astronauts aboard. Effective groups understand the challenges of Groupthink, and take care to avoid its consequences with techniques such as those discussed in the decision making section of Chapter Two. Thus, effective groups tend to be cohesive, though cohesive groups will not necessarily be effective. So far this chapter has outlined a variety of challenges for managers regarding leadership, motivation, and the use of groups and teams. There is one common denominator that is required to effectively implement all of the recommended management practices for optimum performance across these three areas: effective interpersonal communication. That is the focus of the next section.

Interpersonal Communication
The most frequent activity that a manager engages in is communication. Communication refers to the transmission and reception of meaning between two or more people through the use of symbols. Effective communication occurs when the intended meaning sent by one person is the same as the perceived meaning received by another person. To understand communication and its implications for the manager, we must rst understand the basic process of communication.

Model of the Communication Process


In order for communication to occur, at least two people must be involved. One person always originates and transmits the message, while the other(s) receive and perceive the message. The individual who originates the message is called the sender. The sender encodes a message by using symbols (such as words) to transmit information through a channel (such as the air or a telephone line for sound waves) to the receiver, who decodes the message by interpreting the meaning of the symbols. One-way communication occurs as just described, when one individual sends a message to another, but receives no reaction. Two-way communication occurs when the sender receives feedback from the receiver. Feedback is a response from the receiver to the senders message. Effective communication typically requires feedback, since the intended meaning that a sender is attempting to convey is often distorted by noise, which includes anything that interferes with the accurate sending or receiving of the message.

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A variety of barriers to communication provide noise. These include things like ltering (the manipulation of information by the sender), information overload (when too much information is presented for a receiver to absorb), semantics (different meanings associated with the same words), perceptual errors (such as selective perception or perceptual defense), and other individual differences (such as differences in age, gender or culture). Effective communication is typically a cyclic process of two-way communication, in which the roles of sender and receiver are constantly reversed as both parties transmit their perceptions back and forth in order to ascertain that they have achieved a common understanding. In this way, the barriers to effective communication can be overcome. A communication channel is the medium through which the message is sent. Different channels vary in their information transmission capabilities. The term channel richness (also known as media richness or information richness) refers to a mediums capacity to accurately carry larger amounts of information and to allow for feedback between the sender and receiver. Effective communication requires selecting the appropriate channel for the type of message to be conveyed. Channel richness varies from highest to lowest as follows: highest is face-to-face communication, followed by videoconferences, then telephone conversations, then voice mail, then email, then websites, then videos, then formal written documents such as memos and letters, and nally, channel richness is lowest in formal numerical documents, such as spreadsheets. Routine messages that are simple, clear and straightforward are most efciently handled through low richness media, while nonroutine messages that are novel, ambiguous, emotionally charged, or easily misunderstood need to be transmitted through richer channels. For example, communicating a sexual harassment policy to employees could be efciently handled through memos, websites, and videos. However, investigating a sexual harassment complaint should utilize richer media, including face-to-face communication.

Categories of Communication in Organizations


Communication in organizations occurs at both the organizational and interpersonal levels, and may be either formal or informal. Formal communication includes the ofcially sanctioned information and positions within the organization. Informal communication occurs outside of ofcial channels, and is not sanctioned by management. The grapevine is the most powerful example of informal communication. At the organizational level, formal communication is typically described as vertical (including downward and upward communication) or horizontal (also called lateral communication). At the interpersonal level, communication occurs directly between two or a small number of people (such as in a dyad or small group setting), and may be formal or informal. Depending upon the individuals involved, interpersonal communication may also be upward, downward, or horizontal.

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Vertical communication is communication that ows up or down the organization, usually following the chain of command. Downward communication moves down the hierarchy from superior to subordinates or others at lower levels, often in the form of information (such as new goals or performance feedback) or directives (such as what to do and how to do it). Upward communication ows from subordinates to superiors or others at higher levels, often in the form of reports, requests, questions, suggestions, or complaints. Horizontal communication occurs between peers at the same level in the organization, and typically involves information necessary to solve problems or coordinate efforts. Such communication may occur between members of a single department or team, or between different departments and teams. The grapevine is a term used to refer to the unofcial, informal communication of news, rumors, gossip, or other information among members of an organization. The grapevine may operate horizontally or vertically within the organization. Grapevines can be found in all organizations, though they tend to be more active in larger than smaller organizations (perhaps because all communication tends to be more informal in smaller organizations). The grapevine operates quickly, especially in times of uncertainty, such as rumors of an impending layoff. Research has concluded that grapevine information is generally accurate, and that the grapevine tends to be used more at lower levels of the organization. While managers often dislike the grapevine, savvy managers learn to use it, since it cannot be eliminated. Most recently, information technology has supplemented the water cooler as a place for the exchange of grapevine information. Email and instant messaging, as well as employee blogs (an unofcial online web log posted by an individual) and non-ofcial Internet discussion sites used by anonymous employees to post unauthorized comments about their employers have posed new challenges for managers. These developments bear careful scrutiny in the future, as they can hurt company image or potentially result in legal liability. At the same time, they can be a valuable source of information for managers regarding employee gripes and concerns. Other forms of informal communication include management by wandering around and nonverbal communication. Management by wandering around (MBWA) refers to a technique in which managers interact directly with employees at various levels by walking around the facility and having spontaneous conversations. This can be an effective way to determine the content of the grapevine and to keep in touch with concerns and issues on the minds of employees. MBWA can also increase the referent power of managers by making them more accessible and less aloof and distant from the average employee.

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Nonverbal communication entails the transmission of information through physical factors or behavior without the direct use of words. Examples include behavioral dimensions such as paralanguage (non word aspects of speech, such as laughing, yawning, or hesitating), kinesics (body language associated with movement, such as gestures, facial expressions, eye contact or touching), the use of space or time (standing very close to someone else, or arriving late for an appointment) as well as physical factors such as dress or arrangement of furniture. Managers should pay attention to nonverbal behavior for the additional information that it can convey. Verbal messages can be reinforced using appropriate nonverbal techniques (such as using appropriate seating and eye contact to demonstrate seriousness and authority during a disciplinary discussion). Even more important, verbal and nonverbal messages should be consistent. When they are not, research has shown that receivers tend to trust the nonverbal message more than the verbal one. For example, if employees ask the manager whether they really have to abide by a new policy, and he or she responds with a half-hearted yes, the policy may be ignored (leading to trouble for the manager).

Managing Communication Effectively


A variety of techniques are available to enhance organizational communication. Upward communication may be improved through the use of suggestion systems, employee opinion surveys, formal grievance procedures, open door policies, use of Internet chat rooms, and exit interviews with departing employees. Downward and horizontal communication can be enhanced by carefully selecting the appropriate communication medium to match the goals and content of the message, by focusing on two-way rather than one-way communication, especially for nonroutine messages, and by providing training to managers in effective communication techniques. Two such techniques that are potentially valuable to interpersonal communication are active listening and constructive feedback. Active listening recognizes that effective listening requires conscious effort. It is characterized by focusing on all of the speakers words and actions to grasp both the ideas expressed and the underlying feelings, avoiding premature judgments, paraphrasing what you perceive in your own words, asking questions to clarify understanding, and tolerating silence, which will often draw out the subordinate. Constructive feedback provides information to another person about your reaction to their behavior in an objective, non-threatening manner that does not cause them to become defensive. Constructive feedback is based on a positive relationship of trust, focuses on specic behaviors that can be changed (and not on vague or generalized personal traits), and is checked with the receiver to determine its perceived validity. Active listening and constructive feedback are two of the most effective techniques for improving interpersonal communication between managers and their employees. They are critically important in the performance appraisal and motivational processes, as well as in managing teams.

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Managers should recognize that high richness communication media include most forms of oral communication, and low richness media include most forms of written communication (though new information technologies such as instant messaging are blurring these distinctions). Advantages of oral communication include its personal nature, the inherent two-way communication involved providing rapid feedback, the additional information available through nonverbal communication, and the fact that most managers prefer to use oral communication. Its disadvantages include its spontaneity (which can lead to regretted words), difculty communicating the same message in a consistent manner at different times and places, and the lack of a record of the communication. Oral communication is most appropriate for nonroutine, complex, ambiguous, or emotionally charged topics. Advantages of written communication include its provision of a permanent record of the communication, the opportunity to carefully think through and construct the message sent, and the ease with which the message can be disseminated to large numbers of people. Disadvantages include its impersonal nature, the permanent record it creates (which can be a problem sometimes, especially for hastily written emails), the delay or absence of feedback due to its inherent one-way nature, and the fact that many managers dislike it for a variety of reasons (ranging from poor writing skills to weak technology skills). Written communication is most appropriate for simple, routine communications as well as the transmission of large amounts of complex information that require detailed presentation or repeated access over time. It should be noted, however, that oral and written communication are not mutually exclusive. When it is particularly important that subordinates pay attention to a message and understand it completely, it is desirable to use both oral and written communication. The oral communication can focus attention, identify ambiguities, and answer questions, while the written communication will provide the detailed and consistent information that management needs to convey. The knowledge and use of such effective communication techniques as have been discussed in this section will enhance managers leadership and motivation skills, especially as they attempt to manage change in their organization. As noted in the rst chapter, the continuing globalization of markets is requiring organizations to adapt more and more quickly to remain competitive. That brings us to the nal section of this chapter.

Managing Change
In Chapter One, we dened management as a process of working with and through people to efciently and effectively use an organizations resources to achieve organizational goals in a changing environment. This section of Chapter Four focuses on organizational attempts to manage organizational change by adapting to developments in the environment in order to maintain or regain competitive advantage. Organizational change refers to the substantive alteration of some

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aspect of the organization. Organizational change may be planned or unplanned. Planned or anticipatory change is proactive change based on foresight, which is developed before problems occur, and is systematically managed in an attempt to meet specic goals. Unplanned or reactive change is change initiated in response to unforeseen problems, events or pressures, and may not be as well managed as planned change, since less time is available to develop a response. As noted in the rst and second chapters, environmental uncertainty and change is an ongoing challenge to organizations, with some organizations (such as learning organizations) much more effective than others in adapting to changing circumstances and developing innovative products and processes. In general, organizations that can correctly predict or anticipate environmental challenges will be in a better position to adapt to them, though sudden unexpected changes can and do always occur, making the organizations ability to adapt quickly a critical factor in overall success. Managers must always be attentive to potential performance gaps (discrepancies between actual and desired states), since these may signal the need for organizational change. Successful organizations thus regularly engage in two types of planned change: incremental change (which involves efforts to ne tune existing systems through continuous improvement) and transformational change (which involves the comprehensive redesign and restructuring of organizational systems). The introduction of new products, technologies, and work systems illustrates incremental change, while a total strategic shift such as Microsofts mid-1990s redirection from only ofce systems to a major adaptation to the Internet, or Jack Welchs transformation of GE between 1980 and 2000 from a collection of unrelated businesses to a global powerhouse, both represent examples of transformational change.

Forces for and Resistance to Change


Forces for Change. Two sets of forces create the need for organizational change: factors in the external environment and factors internal to the organization. External factors include the various dimensions mentioned in Chapter One, such as the globalization of markets, changes in the number and quality of competitors, technological advances, changes in the workforce, changes in political, legal and ethical expectations, changes in customer wants and needs, economic developments such as uctuations in interest rates, prices of energy and raw materials, as well as economic cycles of expansion and recession, all of which require adaptation from organizations in order to remain competitive. Internal factors creating the need for change typically arise either directly from internal operations and decisions, or from the impact of external factors. Such internal factors include things like changes in strategy, (such as the introduction of new products or expansion into new markets), changes in technology (such as the introduction of robots that require job elimination or redesign), discovery of process problems (such as problems of production control discussed in the next chapter), or changes in workers attitudes, expectations, or demands, (such as needs to provide more exible work schedules or greater opportunities for personal development in order to attract and retain a required workforce).

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Resistance to Change. Unfortunately for managers, at the same time that various internal and external forces are promoting the need for change, various internal forces typically provide signicant resistance to their planned change efforts. Resistance to change originates at both the individual and organizational levels. At the individual level, employees will resist change due to self-interest (such as fear of loss of income, status, or inuence), uncertainty (including fear of the unknown), and lack of trust in management (including the belief that the purpose of the change is to undermine or eliminate employees). At the organizational level, resistance may be due to a strong organizational culture that values tradition, existing agreements such as union contracts that limit options, or resource limitations that provide inadequate funding to effectively support and manage the necessary change.

Approaches to Managing Change


Two general approaches to organizational change include top down change and bottom up change. Top down change refers to change that is initiated by management (such as strategic change), while bottom up change refers to change that is initiated by employees (such as changes to benets or work processes based upon employee suggestions). Either way, organizational change typically involves change agents, who are individuals (such as managers, consultants, or employees) who act as catalysts and take responsibility for managing the change. Even in cases where consultants and employees are the primary change agents, managers are always involved in the management of change. There are ve common targets for organizational change: tasks (the work itself ), technology (including machines, information technology, and work processes), structure (the organization design), people (including attitudes and behaviors), and culture (especially norms and values). One of the most popular descriptions of the change process described it in terms of three phases. Kurt Lewins model of planned change entails (1) unfreezing (where the organization is prepared for the change, resistance is lowered, and employees come to recognize its importance and support its implementation), (2) changing (where various interventions are used to promote the actual change in task, technology, structure, people, or culture), and (3) refreezing (where the changes are stabilized and institutionalized to maintain long term performance). Effective change typically involves several approaches to overcoming resistance to change during the unfreezing and changing phases. These include top management support (demonstrated support by top management tends to make employees more likely to accept a change, especially one that affects multiple departments); education and communication (enlisting employee support by helping them to see the need for the change and the logic underlying it); participation and involvement (by enlisting employee participation in the design and implementation of the change effort, resistance is reduced and commitment is increased); manipulation and co-optation (which

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involves the selective release of information or use of token participation to maneuver change); negotiation (involving the use of a formal or informal bargaining process to gain the support of the employees and departments affected); and only if absolutely necessary, coercion (the least desirable strategy which may be necessary in crisis situations, is based upon the use of formal authority to demand employees comply with the change or suffer negative consequences). The term organization development has come to refer to a variety of behavioral science techniques and processes aimed at helping organizations to function more effectively. Such efforts often go beyond simply introducing specic changes to tasks, technology, structure, people, or culture and additionally attempt to focus on developing employee skills and relationships to enhance the organizations ability to adapt to its environment. Organization development efforts can be particularly helpful for organizations attempting to manage conict, or to more effectively manage mergers and acquisitions. In addition, general problems associated with organizational decline and the need for revitalization are amenable to organization development interventions. Over several decades, practitioners of organization development and other change specialists have created a variety of change approaches (also called interventions) that can be useful to managers, either for direct use by the manager or with the assistance of an internal or external consultant. Many of these interventions, such as job redesign, total quality management, or matrix organization designs have become widely accepted management techniques that are no longer specically associated with organizational change or development.

Popular Interventions
Organization development interventions include both diagnostic activities and specic change approaches designed to inuence outcomes at different organizational levels. Diagnostic activities include a variety of mechanisms for collecting, analyzing, and interpreting information about an organization in order to understand the causes of its performance problems or the nature of its current condition. Techniques include questionnaires, attitude and opinion surveys, interviews, and analysis of archival data, and will typically involve management and employees in diagnosing situations as well as in designing and implementing interventions. Specic interventions focus on change at three organizational levels: the individual, the team, and the whole organization. Individual Level Interventions. A variety of interventions are aimed at improving the functioning of individual employees. These include job redesign (focused on aligning tasks with employee capabilities), management training (focused on developing managers skills and competencies), sensitivity training (aimed at increasing interpersonal skills and sensitivity to others); role negotiation (aimed at clarifying behavioral expectations between interdependent workers), and life and career planning (designed to integrate personal and organizational goals).

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Team Level Interventions. The ongoing importance of teams to organizational success in the contemporary work world makes these team interventions very powerful tools for organizations. They include team building (structured activities designed to promote team effectiveness); process consultation (third party analysis and advice on managing team processes, such as communication, decision making, and conict management); and intergroup confrontation (structured activities designed to manage intergroup conict and promote better collaboration). Organization Level Interventions. Organization development tends to take an organization wide perspective in analyzing and managing change, and focuses on the interrelatedness of task, technology, structural, and human systems. A variety of organization wide interventions are available for use at this level. These include survey feedback (in which data is collected from employees and shared with both employees and managers to diagnose problems and promote change); technostructural interventions (which focus on organization design, technology, and the human interface of these two components); structural redesign (which focuses on redesigning the organization); open systems planning (a strategic change program designed to help an organization systematically assess its environment and develop a strategic response to it), and management by objectives (designed to systematically integrate goals and plans at all levels of the organization).

Conclusion
This chapter on the leading function of management focused on human work behavior. We described the importance of understanding individual differences and taking a contingency approach to management actions. We noted the role of power in the processes of inuence that are described by both traditional and contemporary leadership models. We noted the historical foundations of motivational theory in scientic management and the human relations movement, and described both content and process models of motivation. We identied the important difference between groups and teams, and discussed types of groups and teams, the typical stages of team development, and the impact of structure and process on team efciency and effectiveness. We laid out the basic model of the communication process and identied various categories of communication as well as advice for the effective management of communication. Finally, we identied forces that create pressures for organizational change, as well as sources of resistance to change. We wrapped up by describing various approaches to managing change and listing a variety of popular change interventions.

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CHAPTER FIVE Controlling

Chapter Five Outline Controlling

Controlling Introduction Nature of Control Four Step Control Process Approaches to Control Market/Financial Control Bureaucratic Control Clan Control Types of Control Feedforward Concurrent Feedback Information Management Information Technology Computer Networks Information Systems Operations Management Manufacturing versus Service Organizations Designing Operations Systems Managing Operations Systems The Productivity Dimension Conclusion

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Introduction
We have nally reached the last chapter of this book. In order to be successful, managers need to not only plan, organize, and lead effectively, but they also need to control the activities in the organization to make sure that employee efforts remain on target and that behaviors and processes are contributing to appropriate and productive outcomes, and not just idle activity. As noted in the rst chapter, efciency and effectiveness are critical to the development and maintenance of competitive advantage. The measurement processes inherent in control systems help managers to determine how efciently they are producing goods or services. This efciency is basic to the concept of productivity. However, competitive advantage is inuenced not only by efciency, but also by effectiveness. The quality of the nal product has become a critical inuence on overall sales. Thus, managers use control not only to maintain efciency, but also to maximize quality through ongoing monitoring of output. In this chapter we will explain the nature of control as a systematic measurement and monitoring process, and describe the critical role of information management in modern control systems. Finally, we will touch upon the discipline of operations management, through which the processes of service and manufacturing organizations are coordinated, evaluated, and maintained in order to produce nished goods or services.

Nature of Control
As a management function, control refers to a process of monitoring performance toward goal achievement, and taking action as necessary to ensure that performance remains within acceptable limits while desired results are achieved. The control process thus includes actions taken to remedy deciencies in performance, as well as actions taken to maintain effective performance. Ultimately, the control process is based upon the measurement of performance, which is evaluated through the use of information. Thus, effective information management is critical to the control process. Effective control requires concrete information about performance standards and accurate information about ongoing performance. An effective control system in an organization assures that the work done in that organization is contributing to the achievement of the organizations goals.

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The control process is generally recognized as consisting of four steps: (1) establishing performance objectives and standards, (2) measuring actual performance, (3) comparing actual performance to objectives and standards, and (4) taking any necessary action (such as correcting deciencies or reinforcing appropriate actions). Each of these will be discussed in turn.

Establishing Performance Objectives and Standards


As part of the strategic planning process discussed in Chapter 2, managers specify goals or objectives for departments, which include specic, measurable outcomes or targets to be achieved. Performance objectives are more general goals for an individual or organizational unit that are linked to the organizations strategic plan. The measurable outcomes to be achieved as part of those objectives represent a concrete standard of expected performance with which each units effectiveness can be evaluated. Performance standards are thus a basis for comparison of unit performance that can be used to determine the degree to which that performance is acceptable or unacceptable. Such standards should allow the assessment of performance related to dimensions such as quantity, quality, time, cost, efciency, innovation, and relevant behaviors associated with successful performance. These standards should be appropriately integrated with the cascading objectives that make up the organizations strategic plan. As noted in Chapter 2, planning involves setting goals and objectives in a coordinated and hierarchical fashion across the various levels and work units in an organization in order to focus all efforts toward achievement of the organizations mission and long term goals. Performance standards must be appropriately linked to these cascading levels of objectives in order for control systems to function effectively by keeping units on target toward goal achievement.

Measuring Actual Performance


Since control involves the monitoring and correction of performance, effective performance measurement is critical. Once appropriate performance standards have been identied, reliable and valid measures of performance must be developed that can accurately determine the extent to which any given performance level is being achieved. Reliability means that the measurement is consistently accurate, while validity means that the measure is related to critical organizational outcomes or success factors. Measurement should typically be focused on critical success factors, or dimensions that, if achieved, will ensure the achievement of the overall objective. Note the critical role of the planning process here. If the goals in the plan do not facilitate the measurement and achievement of critical success factors, overall organizational performance will suffer.

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Managers can typically measure two dimensions related to performance: actual outputs or behavior associated with providing outputs. The numbers of units produced or the dollar value of sales within a given period of time would be direct output measures. Time spent on the production line or numbers of sales calls made would be examples of behaviors associated with outputs. Depending upon the nature of the goods or services produced by the organization, measurement of outcomes, behaviors, or both may be necessary and appropriate.

Comparing Actual Performance to Objectives and Standards


At this stage of the control process, actual results are compared to objectives. The effectiveness of this third step in the process is critically dependent upon the objectives and standards identied in the rst step, as well as the accuracy of the measurement process developed in the second step. Assuming all is well with those two dimensions, performance may meet, exceed, or fall below the standard. Different outcomes will require different actions at the nal stage of the control process.

Taking Necessary Action


If the results of the comparison indicate that performance meets or exceeds the standard, limited action is normally required. Since performance is on target and the organization is moving forward toward achieving its goals, no action is necessary. On the other hand, as noted in the previous discussion on motivation, behavior and results in organizations are typically maintained through reinforcement. Thus, it is appropriate to at least provide feedback and recognition for successful performance, if not outright rewards for units that exceed assigned goals. In these days of hyper competition, many organizations will take the time to identify specic processes that enable some units to exceed standards, so that they can share those processes or procedures with other units in the organization to improve overall efciency and effectiveness, and thereby enhance their competitive advantage. Note that it is exactly this type of process that is involved in benchmarking, described in Chapter 2 as identifying outstanding practices in one organization and adapting them for use in another organization. Another response to units exceeding the standards is to raise the standard, and thereby attempt to boost the productivity of the entire organization. Depending upon the circumstances, this may or may not prove to be an effective action. If the results of the comparison of actual performance to the performance standards indicate that results fall below the expected standard, corrective action is called for. This may take a variety of forms within two possible categories: either adjust performance or adjust the standards. Depending upon the source of the performance deciency, managers might redesign the work, reassign employees, provide training, or take other action. In cases where too many or too few units or

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employees are achieving the standard, it may be the case that the standard is set too high or too low. In such cases, it is appropriate to change the standard. In all circumstances, it is critically important to identify the reasons for the performance deciency and to focus corrective actions on those specic issues or problems.

Approaches to Control
A variety of different approaches to control have been identied and described in the management literature. There is no consensus on a single conceptual scheme to encompass the basic methods or approaches to control. Some authors have noted that there are essentially two options to control: internal or external. Internal control occurs when motivated and committed workers regulate their individual and team behavior through self-discipline and personal control. External control occurs when direct supervision and/or administrative systems are used to control employee behavior and thereby organizational outcomes. Discussions of control often identify several general categories. Our discussion will focus on market/ nancial control, bureaucratic control, and clan control. As with most control systems, these would entail dimensions of both internal and external control. This set of categories can be used to incorporate many of the different approaches to control discussed in the literature, and will be employed for the basic discussion here. It should be noted that these approaches to control are not distinct and discrete. They may often overlap. All organizations will typically use some dimensions of nancial control. And while differences in organizational culture often cause some rms to lean more towards bureaucratic control and others towards clan control, all organizations must include components of bureaucratic control, as is evidenced by the universality of the four step control process.

Market/Financial Control
Market/nancial control focuses on market mechanisms and/or nancial dimensions as outcomes to be emphasized in the control process. Such systems may focus on protability, price competition, market share, and/or various nancial controls, such as budgetary control and nancial statements. These systems typically focus more on external controls than internal controls, though both are typically involved. Since market conditions are typically evaluated in terms of their nancial impact on an organization, nancial controls are typically (though not always) emphasized from this perspective. A variety of nancial controls should be discussed at this point. Financial control is one of the most traditional and universal forms of control. It has been said that business success requires an ability to work with budgets and nancial statements in making management decisions. Accounting is

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often described as the language of business, and is typically the primary evaluative tool used to assess unit performance. Managers should understand two general aspects of nancial control: budgeting and nancial analysis. In organizations, budgets are the ultimate basis for nancial control. Budgetary control is a process for controlling expenditures in an organization. It is probably the most widely used form of management control. As noted in Chapter 2, a budget is a plan that commits specic resources to a project or activity for a dened period of time. While budgets typically are expressed in monetary terms, they may be developed in other forms, such as units of production or hours of labor. Budgets are typically prepared for every unit of an organization that performs a distinct function. While they are often prepared for oneyear periods, monthly or quarterly breakdowns are not uncommon in some organizations. The budget species the amount to be spent for various activities over that period of time. The managers job is to perform his or her units work within that allocation of available funds. In this way, budgets serve several purposes. Budgets allow for the allocation and control of resources. They allow top management to assess the performance of managers and work units. Since they are typically expressed in common monetary terms, they allow comparison of performance across departments, levels of the organization, and time periods. Managers should understand the difference between an operating budget and a nancial budget. An operating budget is a mechanism for controlling the planned operations of the unit, in terms of resources that will be used to produce a predicted level of output. The operating budget includes the revenue and expense budgets. The revenue budget is a forecast of total income for the year, while the expense budget is the forecast of the total operating spending for that year. The goal of the manager is to keep these in line with each other. Financial budgets identify the sources of money for the organization, (such as sales revenue, loans, sale of assets, or offerings of new stock), as well as how the organization will allocate that money over time. Both nancial statements and nancial ratios are important in the area of nancial analysis. Financial statements use nancial information to describe organizational performance in the form of nancial reports. Since nancial statements provide the basic information used for nancial control in business organizations, managers should understand two basic nancial statements: the balance sheet and the income statement. The balance sheet provides a picture of the organizations nancial status in terms of assets and liabilities at a single point in time, such as the end of a quarter. The income statement, (which is also called a protand-loss statement) provides a summary of the organizations nancial performance for a given period of time, such as one year. They describe the rms income, expenses, and net prot (income minus expenses) for that time period. Financial ratios provide summary information for nancial analysis, through which managers evaluate nancial reports to compare the organizations performance to previous data or industry norms. Such analyses can show improvement or decline in organizational performance, as well as the

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relative competitive position of the organization in its industry. Common nancial ratios are used to track an organizations cash (liquidity), efciency, and protability over time. Managers ought to understand at least four basic nancial performance ratios: liquidity, leverage, efciency, and protability. There are multiple examples of different ratios in each of these categories. We will provide a single example of each for illustrative purposes. Liquidity ratios describe the rms ability to meet its current debt obligations. As an example, the current ratio is dened by current assets/current liabilities. An organization would prefer to have greater assets than liabilities. Leverage ratios describe the level of funding of organizational activities with borrowed money (as opposed to cash). For example, the debt-to-asset ratio is dened by total debt/total assets, and describes the degree to which managers are using borrowed funds to nance investments. Typically, an organization would want less debt and greater assets. Activity ratios (also known as efciency ratios) describe how well organizational assets are being used to create value. For example, inventory turnover is dened as total sales/average inventory. In order to maximize the productive use of funds, an organization would prefer higher sales and lower inventory. Finally, prot ratios describe the amount of nancial return from an investment. The most widely used is the return on investment (ROI), which may be dened as net prot after taxes/total assets. Of course, organizations want to maximize prots. This section has focused on market and nancial controls in a general sense. One approach in particular, called the balanced scorecard, is a ne example of an integrated control mechanism in this area that deserves brief mention. This approach emphasizes the measurement of organizational performance from four equally important perspectives: the nancial perspective, the customer service perspective, the perspective of internal operations, and the perspective of innovation and organizational learning. Its advantage is in going beyond pure nancial measures used in traditional approaches to control to emphasize performance excellence across market, business process, continuous improvement, as well as nancial measures. This approach has become widely used in various adaptations across many organizations.

Bureaucratic Control
Bureaucratic control focuses on standards and procedures and emphasizes organizational authority. It typically entails a formal, administrative system of rules, regulations, standard operating procedures (SOPs), and policies (discussed in Chapter 2) designed to establish standards and ensure that behavior and outputs correspond to those standards. Bureaucratic control systems may focus on output controls (such as operating budgets or nancial measures) and/or behavior controls (such as job descriptions or direct supervision) to regulate performance and ensure the achievement of specic organizational outcomes. As such, these systems focus more on external controls than internal controls, though both are still involved. Such organizations tend to focus on employee

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compliance, rewarding individual performance and limiting employee participation. They often have tall, mechanistic organizational structures. This bureaucratic approach is often cited as the best t for the traditional, standards based approach to the control process described above. That is to say, bureaucratic control is sometimes dened as a formal system of control based upon the establishment of standards, measurement of performance, identication of performance gaps, and corrective action. This is, of course, the essence of the general control process described above.

Clan Control
Clan or decentralized control focuses on organizational culture and interpersonal processes as the basic dimensions of control. This approach is more informal, and less systematic than either the market or bureaucratic models. It emphasizes the regulation of employee behavior through shared norms, values, beliefs, traditions, and an emphasis on self-regulation and trust among individuals and teams. In such systems, employee selection and organizational socialization are critical aspects of the control system. Clan control clearly focuses more on internal control than external control mechanisms, though both are still involved. Such organizations often focus on employee commitment to the values and culture of the organization, and emphasize personal responsibility for results over blind adherence to rules. They typically promote the use of teams in the context of a atter organizational structure, and provide for high levels of participation as well as group based rewards. As opposed to the mechanistic approach of the bureaucratic model, the clan model tends to be exible and organic, with an emphasis on adapting readily to changing circumstances.

Types of Control
An organization can be conceptualized as an open system in which inputs (labor and supplies) are transformed according to a variety of processes (manufacturing or service production activities) into outputs (goods or services). Control may be seen as focusing on events occurring before, during, or after a process. In this context, it is common to describe three major types of control: feedforward, concurrent, and feedback controls. Feedforward control focuses on inputs, and anticipates problems. Concurrent control focuses on transformation processes, and corrects problems as they occur. Feedback control focuses on outputs, and correct problems after they occur. Each of these will be discussed in turn.

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Feedforward Control
Feedforward control is also referred to as preliminary control or preventive control. It is designed to prevent problems from occurring during the work process. Feedforward control focuses on the resources coming into the organization, or being used in the production process. It attempts to ensure that those resources will not cause problems during the production process. For example, an electronics manufacturer that requires suppliers to provide only high quality components reduces the likelihood that their nal products will be defective. Rules and procedures are excellent examples of feedforward control. Safety rules in the mining industry are designed to prevent accidents or other problems from occurring. Performance standards are also a form of feedforward control. By providing a new employee with a concrete job description and orientation outlining the expectations for their behavior on the job and the results to be produced, a company increases the probability that the employee will perform the job successfully.

Concurrent Control
Problems cannot always be prevented, however. Concurrent control is also known as screening control or steering control. It attempts to monitor processes while the work is being done to make sure that everything is proceeding according to plan. The focus is on making sure that standards are being met as inputs are transformed into outputs. The most obvious form of concurrent control is direct supervision. An experienced manager oversees the work process, and corrects problems as they occur. Equipment is frequently programmed to provide information allowing concurrent control. Word processing programs will underline words or phrases in color to indicate possible spelling or grammatical problems. In addition to the use of technology, concurrent control relies on performance standards and uses rules and regulations to keep employee behavior on track.

Feedback Control
Feedback control occurs after the work process is completed, and focuses on outputsthe quality of the goods or services produced. Feedback control is also referred to as postaction control, rework control, or output control. An automobile repair facility may provide a customer evaluation card to be completed after work has been done on their vehicle. A university may do student evaluations to determine the quality of faculty teaching performance. A nancial statement may be used to identify a decline in sales revenues. The information provided by feedback control allows managers to alter aspects of the situation that created problems in order to avoid similar problems in the future. That is to say, feedback control allows managers to use information about past performance to adjust future performance.

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In these times of signicant global competition for market share in many industries, control is a critical factor inuencing product sales. Wherever possible, organizations should focus on feedforward or concurrent control to maintain product quality and customer satisfaction. While feedback control is also critical and cannot be ignored, companies pay a price for frequent dissatisfaction among their customers.

Information Management
The common denominator in the area of control is information. Control systems are formal monitoring, evaluation, and feedback systems that provide information to management regarding the level of control achieved in specic areas. Advancements in information technology have revolutionized control systems, since relevant information is now so easily collected and shared among any and all appropriate individuals and work units. Employees at all levels of the organization contribute to and use information to effectively control company processes and thereby ensure the high quality of goods and services produced. It is appropriate at this point to review some of the essential concepts in information management.

Information Technology
Information technology (frequently referred to as IT) refers to the resources employed by an organization to manage the information that it needs to accomplish its activities. Discussions of information technology differentiate between data and information. Data refers to raw, unorganized facts and observations, such as characteristics of customers or numbers of units sold. Information is data that has been organized in a meaningful way, such as specic types of customers purchasing more or less of a given product. In order to be useful, information typically requires several characteristics. Useful information is: (1) timelyit must be available when needed for decision making; (2) accurateit must be reliable, high quality information that can be used with condence; (3) completeit must be up-to-date and sufcient for the purposes needed; (4) relevantit must be concise and appropriately suited for the demands of the task at hand; and (5) understandableit must be presented in a way that is easy to comprehend.

Computer Networks
In the area of information technology in organizations, managers ought to have a basic understanding of both computer networks and information systems. A computer network is a system of two or more interconnected computers that allows users to share information and resources and to work interactively. Commonly used networks in organizations include the local area network, the Internet, intranets, and extranets. A local area network, or LAN, is a computer network using

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software to manage information across a number of interconnected, single user workstations. The Internet is an interconnected network of computer networks, connecting hundreds of thousands of corporate, governmental, educational, research, and other computer systems worldwide. One component of the Internet, the World Wide Web, is a system based on a graphical user interface that allows users to tap into and share information worldwide instantly, on a 24/7 time basis. The Internet and World Wide Web have revolutionized business practices since the mid-1990s, with the explosive growth of electronic mail (e-mail) and the use of web sites to share data, text, documents, images, and many other types of information. An intranet is a private or controlled internal network, which differs from local area networks in that intranets use the infrastructure and system standards of the Internet and the World Wide Web. Thus, intranets typically involve the use of a website for employee communication. Such systems allow management to control access to sensitive levels of information by different employees, and allow employees to work from remote locations. An extranet is a wide area network which links an organizations employees, customers, suppliers, and other business partners in an online, web based communication context. Typically, involvement in such networks is carefully controlled, since internal company information systems are being accessed. Essentially, an extranet allows selected individuals and organizations to access portions of a companys intranet.

Information Systems
Information systems are used in organizations to allow access to critical information needed for decision-making purposes. Information systems combine computers and various other hardware and software components along with human resources to satisfy needs for organizational information and communication. The many types of information systems available may be differentiated based upon the employees served and the functions performed in the organization. In this context, two general categories of information systems that are widely used among organizations today can be identied: operations information systems and management information systems. Operations information systems maintain records and are used in the daily activities of the organization. Examples include transaction processing systems, process control systems, and ofce automation systems. Transaction processing systems may represent the lowest level and simplest form of computer-based information system. Such systems are used to manage routine, recurrent business activities. They record and process data resulting from business operations. Examples would include systems that record sales to customers, payments to suppliers, wages disbursed to employees, or inventory used in the production process. Transaction processing systems provide databases that can be used to produce reports regarding the status of funds, materials and processes in the organization. Process control systems are used to monitor and run machinery, electronic systems, or other equipment. Such systems might monitor temperature in a nuclear reactor core,

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and issue a warning or automatically shut down the reactor if the temperature rises to a dangerous level. Ofce automation systems combine hardware and software to handle tasks related to the collection, publication and distribution of information. They have been used to transform accounting functions such as payments to suppliers from manual to electronic form, or to locate specic vehicle types requested by a customer at a car rental facility in a large urban area. Operations information systems thus meet the needs of lower level employees and rst-line managers. Management information systems are computer-based systems designed to provide information and support for making managerial decisions. Middle and top-level managers typically use these systems. Examples include information reporting systems, decision support systems, group decision support systems, executive information systems, and human resource information systems. Information reporting systems are probably the most common type of management information system. They provide specic types of information in a specied format for use in immediate managerial decision-making. Decision support systems are interactive systems utilizing specialized databases and decision models to help managers make nonroutine decisions more effectively. Group decision support systems (also known as groupware) typically involves software that allows members of a group to interact electronically in order to share information, work collaboratively, and make group decisions when dealing with complex and unstructured problems. Executive information systems provide the information necessary to facilitate strategic decision-making by top managers. Such systems often integrate information from databases, transaction-processing systems, and information reporting systems through a series of key performance related lters, and provide critical bits of information for evaluation and possible action by top managers. Human resource information systems accumulate, store, retrieve, and analyze data relating to a rms employees. Information relating to skills, pay, performance, and promotions may be used for a variety of purposes related to the management of human resources within the rm, including decisions regarding salary increases, promotions, layoffs, training, or disciplinary action. It should be noted that while this discussion has focused on operations information systems and management information systems, other treatments of information systems may quite appropriately use different formats to categorize those systems. The current structure does not include all potentially relevant types of information systems. For example, expert systems are among the most advanced and sophisticated information systems in existence. These systems use articial intelligence to imitate the analytic processes of human experts in order to solve problems or make decisions that would normally require human intervention. Such systems are increasingly being used for automatic approvals of credit card purchases, in order to identify the possible fraudulent use of an account. They do not t into either the operations information or management information categories. In any event, it should be noted that all of the different types of information systems described here may be useful as components of control systems in organizations.

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Operations Management
In the discussion on types of control, we pointed out that an organization can be conceptualized as an open system in which inputs (labor and supplies) are transformed according to a variety of processes (manufacturing or service production activities) into outputs (goods or services). This concept of inputs going through a conversion processes to result in outputs is basic to the eld of operations management. Operations management refers to the processes that an organization uses to obtain inputs (such as raw materials, component parts, and skilled labor) and transform them into outputs (nished products and/or services). In the opening chapter, we discussed the need for organizations to maximize efciency and effectiveness in their production of goods or services, in order to develop and maintain a competitive advantage in the contemporary global business environment. Effective operations management is a critical contributor to the overall efciency and effectiveness of an organization, and a critical determinant of the quality of its nal products or services. That is to say, operations management is a critical component of organizational performance and success.

Manufacturing versus Service Organizations


It is important to recognize that operations management is critical in both manufacturing and service organizations. Historically, the United States was a manufacturing economy, where many businesses were involved in the production and distribution of goods. The eld of operations management was originally called production management, to reect this primary concern. However, over that past several decades, the U.S. economy has shifted to a primarily service based economy, the majority of U.S. organizations in service industries rather than manufacturing industries. As a result, management concerns related to the development and delivery of services have become critical to the success of most organizations. It is important for managers to understand the differences between manufacturing and service organizations. Manufacturing organizations are capital intensive, producing physical goods that can be inventoried for later sale (such as automobiles or canned vegetables). Service organizations are labor intensive, producing less intangible outputs, where the outputs need to be produced at the time of consumption, and cannot be stored (such as a haircut, or a college course). In spite of these differences, both manufacturing and service organizations need to be concerned with obtaining materials and supplies, scheduling work, laying out their facilities, and maintaining quality and productivity. These commonalities make operations management a critical management concern for all organizations.

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A full analysis of operations management would include a discussion of classifying operations systems, designing operations systems, and managing operations systems. The classication of operations systems is beyond the scope of this book. For those who might want to know what they are missing, sufce it to say that the dimensions involved here include the tangibility of products (tangible, intangible, or mixed); the level of customer involvement (resulting in operations that are make-to-stock, assemble-to-order, or make-to-order); operations exibility (determining whether products are produced using continuous, repetitive, batch, individual, or project process operations); and nally, resources and technology management (capital intensive versus labor intensive). We will leave the classication dimension at that, and explore the design and management of operations systems in a bit more detail.

Design of Operations Systems


A full discussion of the design of operations systems would include product mix and design, facility layout, facility location, and capacity planning. However, those topics are beyond the scope of this presentation. Our discussion touches on facilities and technology. Facilities decisions include location and layout. Location refers to the geographic site of the organizations facilities. While location is often only moderately important to a manufacturing rm (which can store and transport its goods to market), it is often crucial to success of a service organization (since the consumer typically participates in the production process directly). The layout of a production facility is a critical issue for manufacturing organizations. Options such as product, process, cellular, or xed position layouts are appropriate under different circumstances, but are beyond the scope of this discussion. Technology refers to the processes used within the organization to transform inputs into outputs. Both manufacturing and service organizations are increasingly using automation (designing work to be done by machines). Examples would include robotics or computer assisted manufacturing in manufacturing rms, and the use of automated telephone answering systems, automated teller machines, and sophisticated scheduling software in service organizations. Technology needs to be taken into account as part of the design of operations systems.

Management of Operations Systems


After operations systems have been designed and developed, they must be implemented effectively. Numerous techniques and procedures have been developed in this regard. A manager should have an awareness of these possibilities. Our discussion will touch on scheduling and project management, supply chain management, and quality management.

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Scheduling refers to the process of listing the production activities that need to be done in sequence along with the time needed for each. Techniques that will be frequently encountered in this regard include the Gantt chart and the Program Evaluation and Review Technique. The Gantt chart uses bar graphs to visualize a schedule and show progress over time. The program evaluation and review technique (PERT) is an approach to network scheduling that integrates both dependent and independent activities to visually show how work must be completed on a project over time. Gantt charts are often used to develop schedules for routine standing plans, which are designed to manage repetitive situations. PERT is more likely to be employed on a specic project as part of a single us plan designed to cover unique circumstances that are not likely to recur. Supply chain management is a new term used to refer to the process involved in coordinating all of the activities involved in producing a product and delivering it to the customer. It involves control of the operations process, the acquisition of resources, and the management of inventory in order to maximize efciency and effectiveness. Procurement (also known as purchasing management) refers to the buying of raw materials, services, and other resources for use in the production process. Inventory refers to the stock of raw materials, components, and products that the organization keeps on hand to meet its production and/or sales needs. Inventory control refers to maximizing efciency with regard to four components of inventory: raw materials, work in process, nished goods, and products in transit to customers. The just-in-time method (JIT) attempts to order materials to arrive only as they are needed, thereby holding down both storage and inventory costs. Materials requirement planning (MRP) is a complex inventory planning and control system that integrates operations and inventory control with ordering and scheduling. Economic order quantity (EOQ) is an inventory management system designed to minimize the costs for ordering and holding inventory. Logistics and distribution management deals with the efcient movement of inventory. Logistics refers to the activities involved in bringing materials into the operations facility as well as moving nished products to customers. Distribution (also known as order fulllment) refers to moving nished products to customers. Quality management refers to the processes employed by a rm to ensure that its outputs meet acceptable quality standards. Quality refers to a product or service that is free of defects, or to the characteristics of a product or service that satises customer needs. As noted in the rst chapter, organizational performance is assessed in terms of how efciently and effectively the management process is able to satisfy customer expectations with the quality of the goods or services produced. Quality is thus a critical requirement for success in the highly competitive global business environment. Organizations worldwide have taken numerous steps to maximize quality at all levels of their operations. The United States government created the Malcolm Baldrige Award that is given to rms that have achieved very signicant quality improvements. The International Standards

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Organization (ISO) certies organizations that meet specic quality standards by documenting policies that address quality management, continuous improvement, and customer satisfaction. Both manufacturing and service organizations are pursuing this certication, referred to as ISO 9000. A variety of tools and techniques have been developed to help managers improve and maintain quality. The most widely discussed approach to managing quality is called total quality management. Total quality management (or TQM) refers to an organizations strategic commitment to emphasizing quality in all aspects of its operations. Basic principles of TQM include (1) emphasis on delivering customer value; (2) commitment to the continuous improvement of systems and processes; (3) focus on managing processes rather than people; and (4) using employee involvement and teams to promote continuous improvement. Six Sigma is a worldwide quality initiative promoting a goal of only 3.4 defects or mistakes per one million operations. This approach to quality uses statistics, nance, data analysis, and information technology to reduce defects, cut costs, raise employee skill levels, and contribute to the nancial success of the organization. Statistical quality control (SQC) refers to a variety of management science techniques used to improve the probability of identifying and eliminating quality problems. One such technique is statistical process control (SPC), which is part of Six Sigma, and involves the use of statistics to monitor operations during the production process to determine whether quality is within an acceptable standard range. Benchmarking (mentioned in Chapter 2) refers to a process of identifying high quality standards, practices, and procedures used by other companies and adapting them for use in ones own organization. Value-added analysis represents a comprehensive analysis of all work activities and processes to determine their contribution to the overall value of the product or service. Wasteful or unneeded activities are eliminated in order to boost efciency without reducing customer satisfaction. There are many other quality control or quality improvement techniques might be mentioned here, including ow charts, shbone diagrams, Pareto analysis, control charts, histograms, scatter diagrams, and run charts. While we will not provide detail on these, the student of management might want to be acquainted with these terms as additional tools and techniques associated with quality management.

The Productivity Dimension


Finally, no discussion of operations management would be complete without a discussion of productivity. Productivity is an economic measure of efciency in production. In the broadest sense, productivity is a measure of organizational performance indicating the level of inputs used to produce a given level of output. Productivity is equal to outputs divided by inputs. Thus, productivity can be improved in two ways: either reducing the amount of inputs required to produce an output, or increasing the amount of output produced using the same amount of inputs. Since organizations are motivated to maximize efciency, they measure and evaluate productivity carefully. Two

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basic methods may be used to assess productivity: total factor productivity and partial factor productivity. Total factor productivity = outputs/all inputs. It is a general measure of how efciently an organization uses all of its resources, such as raw materials, energy, labor, and capital. This overall measure does not typically help to identify places to improve productivity. That goal is served by partial factor productivity. Partial factor productivity = outputs/one input. This measure addresses the contribution of a single input to the nal output. For example, labor productivity = outputs/labor. In a similar way, partial productivity ratios could be determined for raw materials, energy, capital, or any other input. Productivity is important because higher productivity results in lower costs, which promotes competitive advantage in the marketplace. Thus, organizations are typically very concerned about increasing productivity wherever they can. Productivity can typically be improved either through operations or through people. Productivity can be improved through operations by using more efcient machinery, equipment, and technology to increase outputs with a given or reduced level of inputs. Computerizing or outsourcing particular functions are popular ways of boosting operations based productivity. Getting workers to produce a higher level of outputs with the same or fewer inputs enhances employee productivity. Improving work processes, providing skills training, enhancing employee involvement, and downsizing have all been used in this regard. Process reengineering is a technique designed to enhance quality and productivity by fundamentally re-evaluating and radically redesigning work processes to streamline the production process by eliminating unnecessary activities and reducing paperwork. Signicant improvements in timeliness, costs, quality, and service have been documented at organizations like Ford Motor Company, who have effectively employed this procedure.

Conclusion
This chapter has review management concepts and practices related to the fourth function of management: controlling. We reviewed the nature of control as a critical process contributing to efciency and effectiveness, and thereby to both productivity and competitive advantage for any rm. We discussed the four step control process, and described three general approaches to control that are widely used in business organizations: market/nancial control, bureaucratic control, and clan control. Because of the overwhelming use of nancial control systems in business organizations, we expanded upon two important components of nancial control: budgeting and nancial analysis. In terms of the general implementation of control systems, we described three types of control: feedforward, concurrent, and feedback. We discussed the topic of information management, since information is the common denominator of all control systems. Finally, we

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reviewed the eld of operations management, which impacts the efciency and effectiveness of both manufacturing and service organizations. We highlighted the link between operations management and productivity, coming full circle back to the concept of competitive advantage for the organization, which is where we started this text.

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